Serco Share News (SRP)

(Sharecast News) - Analysts at RBC Capital Markets upgraded shares in public services outfit Serco to 'sector perform' on Monday, noting that it now saw the risk of short-term disappointment as being "low".While the Canadian broker noted that trading continued to be "tough", RBC believed Serco has made its way "off the naughty step", highlighting the firm as being "well placed" versus peers, adding that free cash flow generation would be markedly improved by 2020."Whilst trading is tough, we see the risk of short-term disappointment now as low, with 2019 forecasts looking achievable," said RBC.RBC expects an in-line update from Serco on Thursday, noting that it feels risks to the firm's 2019 earnings per share were "relatively low" given the visibility, cost savings underpin and swing on the Carillion contracts."Whilst 2020 is tougher to call given the rebid profile, we believe Serco is well placed versus peers and FCF generation will have improved markedly by then, providing strategic options."On the other hand, RBC warned that contract wins were "key to confidence in the medium-term return to growth story", noting that given the political uncertainty and Brexit, it expects the UK market to "remain tough".RBC, which kept its 90p target price unchanged, credited management for doing a "good job" improving the business, especially around contract management reporting, improved processes and improved contract risk management."We believe the platform and management team could now support a bigger business. With several UK competitors still with debt and performance issues, we believe there is scope for further consolidation and would expect Serco to be a net beneficiary."