Thursday tips round-up: Serco, Hikma Pharmaceuticals, Goals Soccer Centres

The future for outsourcing outfit Serco is now uncertain as the Government calls for a detailed review of all contracts and profit margins are expected to slide. However, its update on trading in the second quarter was good. With long-term government contracts comes steady cash flow, and Serco has built a strong balance sheet over the years. What's more, brokers forecast indebtedness to fall by a fifth over the next two years. Serco shares remain a good long-term bet because of that balance sheet strength. However, we also need to see profit margin erosion arrested, the Daily Telegraph's Questor team says. Brokers have cut forecasts for this year and next, leaving shares on an earnings multiple of 14.2 times, falling to 13.2 next year, with a prospective dividend yield of 1.9 per cent, rising to 2.3 per cent they point out. As a result, Questor rates the shares as a hold.Generic drug manufacturer Hikma Pharmaceuticals yesterday announced a strong rise in first-half revenues of 20%to $638m, thanks to sales of its generic antibiotic called doxycycline, while pre-tax profits almost doubled. That came alongside a 17% increase in its interim dividend together with a special dividend, with the remainder of the funds being funnelled towards a reduction in the company's debt levels. Unfortunately, after a strong run - the stock has risen by more than 46% this year - the shares price in much of this good news, trading on a punchy 2014 adjusted earnings multiple of 21 times, so rate a hold for now, Questor says. The loose bid chatter around Goals Soccer Centres masked a move by Harwood Capital to strengthen its hand. The fund, the vehicle of activist investor Christopher Mills, has more than 15% of Goals, having added another half a million shares this week. The shares have edged to a three-year high of 160.5p. The company, with Keith Edelman, a former Arsenal Chief Executive, in as Chairman, is back in the "one to watch" category, writes The Times's Tempus. Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB