Outsourcing group Serco has lost around 5% on concerns about the future of its nuclear warhead contract.
Its shares have fallen 10.1p to 172.2p after a report that the government may scrap the contract, where Serco is part of a consortium running the service. Analysts at Liberum said:
The Sunday Times reports [£] that the government may scrap the Atomic Weapons Establishment (AWE) contract, amid ‘spiralling costs and overruns’. It is expected that this will not happen until after the election. Serco is part of a three way joint venture which covers the whole life cycle of nuclear warheads from design to decommissioning. In 2012, when it extended the contract on less profitable terms, it indicated that its share of revenues would be worth £300m per annum, adding £1.5bn to the order book.
This makes AWE one of Serco’s largest contracts by revenue at least, along with Northern Rail, where it is not rebidding, and Australian immigration, where volumes and margins are lower . Clearly the loss of this contract would be negative, reducing sales by nearly 10%. However, it also highlights a wider issue that the government is willing and able to insource large contracts which it deems to be underperforming (note also Amec’s Sellafield).
