(Alliance News) - The collapse of facilities management firm Carillion PLC five-and-a-half years ago led to fears for the future of the outsourcing model, but recent success achieved by Serco Group PLC suggests such worries were overstated.
Serco shares jumped 9.4% to 155.70 pence each in London on Thursday afternoon, taking the stock some 85% higher than it was when Carillion collapsed.
"A few years back it looked like the typical outsourcing model was broken beyond repair – with the collapse of Carillion in 2018 a watershed moment. However, Serco has shown it is still possible to make a good living by offering contracted services to global governments and that's reflected in today's latest upgrade to earnings forecasts. Demand for its immigration and defence services, two big pressure points for lots of countries, have helped drive growth," AJ Bell analyst Russ Mould commented.
Hampshire-based Serco said it expects annual revenue to rise by around 6.0% to GBP4.8 billion from GBP4.53 billion in 2022. This is ahead of February's guidance of GBP4.6 billion.
On an organic basis, it expects revenue to grow around 6%, after previously guiding for flat growth.
Chief Executive Mark Irwin said: "We have had a strong start to the year, including robust demand for immigration services supported by the effective integration of ORS into our global platform, growth in defence services, and our successful rebid of the CMS contract."
The CMS contract refers to the contract with the Centers for Medicare & Medicaid Services of the US Department of Health & Human Services. It won a rebid for the contract worth USD690 million in February.
Analysts at Peel Hunt so a promising future for Serco.
"In our opinion the business is well placed to navigate the current macro-economic challenges (strong inflation protection and economic resilience) and to retain the significant Australian immigration contract due for rebid later this year," Peel analysts commented.
Peel rates the stock at 'buy' with a 217.00p price target.
By Eric Cunha, Alliance News news editor
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Serco (SRP)