The shares of Serco (LSE: SRP) gained 12p to 612p during early trade this morning after the outsourcing specialist said it was set to report “strong organic revenue growth ahead of… expectations“.
The FTSE 100 member gave the confirmation in a pre-close statement that outlined its trading performance for the first half of 2013.
Serco claimed the top-line progress had been driven in part by last year’s record level of contract awards, together with additional turnover from certain volume-related and project-based work.
However, Serco did admit its level of investment for contract bids, as well as costs for “new market development activity“, had increased more than revenue during the six months.
As such, the company confessed adjusted operating margins for the first half would experience a “small reduction” when compared to last year’s level of 5.9%. Serco also confirmed adjusted operating profits for the six months would be in line with its earlier expectations.
Looking to 2013 as a whole, the blue chip said it expected a “modest improvement in the rate of organic revenue growth” and that its adjusted operating margin would be broadly maintained at last year’s level. Serco also said it remained confident in its “ongoing resilience, overall outlook and future growth prospects“.
Prior to today, City experts had expected Serco’s earnings to advance from 42.6p to 43.7p per share during 2013, and then climb to 48.1p per share during 2014. Those forecasts place the shares on a near-term P/E multiple of less than 13.
That ratio does not look expensive, given the group essentially sailed through the banking crash without a setback. Since 2007, Serco’s earnings and dividend have been lifted every year and have more than doubled in size. The resilient performance has also made the stock a favourite of ace City investor Neil Woodford.
Of course, whether the company’s impressive financial record, today’s progress update as well as the wider prospects of the outsourcing sector all combine to make Serco a ‘buy’ is something only you can decide.
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> Maynard does not own any share mentioned in this article.
