Serco, the UK outsourcer, said its full-year performance would be “meaningfully ahead” of market expectations thanks to better than expected trading in the second half of the year and some one-off gains, sending its shares up more than 15 per cent.
Earlier in the year the group had said that it expected revenue to fall due to “challenging market conditions”.
But in an unscheduled update on Friday, the FTSE 250 group said it was lifting its underlying profit guidance to £90-95m from the previous figure of £80m and upgraded its revenue forecast from a range of £2.7-2.8bn to £2.8bn.
After the collapse of its rival Carillion in January this year, Serco said it would take on a number of its former contracts, including the management of facilities services at six NHS hospitals. Back in June, Serco said that if all contracts were finalised, revenue would increase by around £70m per year, but that it also expected to take on weighty costs as part of the transition.
As well as better than expected trading, the company said it had received an early repayment of a loan note issued when it sold its Indian business processing unit Intelenet back to Blackstone in 2015, following the private equity group’s on-sale of the business earlier this year.
That would help cut net debt at the end of the year, Serco said. Net debt would now be at the lower, rather than mid-to-upper, end of its £200-£250m estimate.
The company cautioned however that it was “mindful of the fact that 2019 will not benefit from the non-recurring trading items we expect to see in 2018”. A further update on 2019 outlook is due on December 13.
Russ Mould, investment research director at AJ Bell, said the update from Serco “suggests a turnaround of the group, previously derailed by financial issues, various contract problems and customers losing faith in the business, is once again heading in the right direction”.
“The next focus may be on whether the company can return to a positive cash generation and even resume dividend payments, which have been absent of late,” Mr Mould added.
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