Serco, the controversial outsourcing group, has finally sold its troubled foreign business processing division at a £45m loss.
The move, part of a restructuring under chief executive Rupert Soames, will mean Serco concentrating more on government service contracts that private sector business. It is selling the business - which runs IT and customer services from its base in India - to private equity firm Blackstone for £250m, less than had been suggested earlier as a number of possible buyers pulled out during the sale process.
The news has lifted Serco shares 2.2p to 105.6p but analysts at Peel Hunt kept their sell recommendation on the business:
Taken together with the exit from the remaining loss-making private sector BPO operations, the transaction is estimated to be broadly earnings-neutral on a pro forma basis and reduce pro forma leverage to around one times. The disposal strengthens the balance sheet and enables Serco to focus on its five core markets. The reduction in leverage is welcome news and we would note that the share price recently has fallen slightly below our fair value target price.
The exceptional loss on disposal is expected to be around £45m.
Liberum issued a hold note:
Serco has agreed the sale of its off-shore BPO business to Blackstone, as expected, for £250m (£220m cash and £30m loan note), lower than widely expected, which is not entirely surprising given the delays in the transaction. We expect net proceeds, after fees and taxation of £200m to £220m.
The price is disappointing but not surprising. It helps with the deleverage, taking covenant debt/EBITDA to around one times, reducing the financial risk. It also allows management to focus on the many issues in the core business. We think the announcement deserves a modest positive reaction.
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