Serco’s shares have leapt after the embattled outsourcing company said trading in the first half of its financial year was slightly better than expected.
The company, which runs railways, prisons and out-of-hours GP services, said in a trading update that it was sticking with expectations for full-year financial performance. It signed contracts worth about £1bn, mainly to secure existing work including air traffic control in the US.
Annual trading profit will be about £90m and revenues will be close to £3.5bn. Serco shares jumped 13% in early trading and were up by 7% to 126p on Wednesday afternoon.
Serco was forced to issue four profit warnings last year and its business has been battered by a series of scandals, including overcharging UK taxpayers for tagging prisoners. As a result Serco was frozen out of new contracts for the UK government, its biggest customer.
Rupert Soames, the grandson of Winston Churchill, joined as chief executive in May 2014 and repaired relations with the government. He has pledged to slim down the business after it expanded too fast overseas and took on projects in areas where it did not have enough expertise such as maintaining Australian patrol boats.
Soames ordered a £555m rights issue in March to strengthen Serco’s finances after writedowns on the value of contracts and assets sent it to a £1.35bn loss for last year. Problems have continued, including losing the contract to sterilise instruments at a new hospital in Perth, Australia, after equipment was found to be contaminated.
Soames said: “We have ended the first half in reasonably good order and are making progress in implementing our plans. Whilst our recovery is at an early stage, and there will be bumps along the road, I am confident that we are doing the right things.”
The shares have plunged from a high of 674p in July 2013, when investors believed the company would cash in on government spending cuts, to a record low of 118p on Tuesday.
Mike van Dulken, head of research at spread betting firm Accendo Markets, said: “CEO Soames says it’s still early days but is confident the company is doing the right things. Investors [are] hoping his conservatism is another case of under-promise and over-deliver.”
Serco’s announcement was good timing for the hedge fund Lancaster Investment Management, which increased its holding in Serco to more than 7% on Tuesday. The fund first revealed its stake in November, when it held 3.4% of Serco’s shares.
