Serco Group plc (SRP.L) | Investment Case

1. Company Snapshot

1.a. Company Description

Serco Group plc provides public services in the United Kingdom, Europe, North America, the Asia Pacific, and the Middle East.The company offers base and operational support engineering, and management and information, as well as nuclear, space, and maritime services for the defense sector; and custodial, immigration detention, and detainee transport and monitoring services for the justice and immigration sectors.It also provides rail, ferry, and cycle operations; road traffic management; and air traffic control services to the transportation sector, as well as integrated facilities management, pathology and non-clinical support, and patient administration and contact services for the health sector.

In addition, the company offers citizen services, including contact centers and case management; middle, back office, and IT; and employment and skills services.The company serves the United Kingdom and Canadian governments, devolved authorities, and other public sector customers; and federal and civilian agencies, and various state and municipal governments.Serco Group plc was founded in 1929 and is based in Hook, the United Kingdom.

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1.b. Last Insights on SRP

Serco Group's recent performance has been positively influenced by renewed confidence from analysts, leading to a fair value estimate increase to £2.52 per share. The company's prospects are being reevaluated, with some analysts expressing optimism. Additionally, a share buyback program could be a potential catalyst, reducing the number of outstanding shares and increasing earnings per share. The company's recent earnings release and evolving market narrative are key factors to monitor, as they may impact its future prospects and valuation.

1.c. Company Highlights

Last Price	294.8
Change Percentage	-1.21%
Open	294
Previous Close	298.4
Market Cap ( Millions)	2931
Volume	87912
Year High	325.8
Year Low	150.5
M A 50	301.73
M A 200	257.03

FCF Yield	14.05%
Dividend Yield	1.19%
ROE	16.69%
Debt / Equity	104.09%
Net Debt / EBIDTA	261.41%
Price To Book	3.39
Price Earnings Ratio	20.37
Price To FCF	7.12
Price To sales	0.6
EV / EBITDA	13.43

2. Serco's Strong FY 2025 Performance Driven by Defence and Growth Initiatives

Serco reported a robust financial performance for FY 2025, with revenue reaching GBP 4.9 billion, up 3% on a constant currency basis. The company's underlying operating profit was GBP 272 million, delivering a margin of 5.6%. Earnings per share (EPS) came in at 0.08601, slightly below analyst estimates of 0.089. The company's cash generation was strong, with cash flow of GBP 219 million, representing a trading cash conversion of 112%. Adjusted net debt increased to GBP 206 million from GBP 100 million at the end of the previous year.

Publication Date: Mar -06

                                    📋 Highlights
                                    Revenue Growth:
                                                Achieved GBP 4.9 billion revenue in 2025, a 3% increase at constant currency, driven by the MT&S acquisition and organic growth.
Order Intake Momentum:
                                                Secured GBP 5.5 billion in orders with a 114% book-to-bill ratio, including GBP 3.5 billion in new Defence contracts.
Cash Generation:
                                                Generated GBP 219 million in cash flow (112% conversion) and announced a GBP 75 million share buyback alongside an 8% dividend increase.
Regional Performance:
                                                North America revenue rose 10% to GBP 1.46 billion (9% from MT&S), while Asia Pacific fell 18% due to contract exits and disposals.
2026 Guidance:
                                                Targets GBP 5 billion revenue (3% organic growth) and GBP 300 million underlying profit, with a 6% margin at the top of the medium-term range.

                                

Segmental Performance

The company's North America segment saw revenue increase by 10% to GBP 1.46 billion, driven by 4% organic growth and a 9% contribution from the MT&S acquisition. The U.K. and Europe segment also reported revenue growth of 6% to GBP 2.58 billion, driven by 5% organic growth. In contrast, the Asia Pacific segment saw revenue decline by 18% to GBP 655 million, primarily due to the exit from immigration contracts and the disposal of the Hong Kong business.

Guidance and Outlook

Serco's guidance for FY 2026 is largely unchanged, with expected revenue of around GBP 5 billion, representing organic growth of 3%. The company expects underlying operating profit to reach GBP 300 million, over 10% higher than the previous year, and a margin of around 6%. The company's valuation metrics indicate a P/E Ratio of 65.08 and a Dividend Yield of 1.15%. Analysts estimate revenue growth of 4.2% for the next year, suggesting a positive outlook for the company.

Valuation and Dividend

The company's current valuation metrics, including a P/E Ratio of 65.08 and an EV/EBITDA of 15.68, suggest that the market is pricing in a certain level of growth. The Dividend Yield of 1.15% is relatively modest, but the company's commitment to returning capital to shareholders is evident in the announced GBP 75 million share buyback. As Nigel Crossley mentioned, the company has focused on improving its debtors, knocking 20 days off its DSO and improving working capital by GBP 250 million over 5 years, which has contributed to its strong cash generation.

3. NewsRoom

What Catalysts Are Shaping the Evolving Story for Serco Group

Nov -07

Source:

Kingfisher flies but FTSE 100 loses early gains

Sep -23

Source:

Taylor Wimpey (LSE:TW.): A Fresh Look at Valuation After a Year of Share Price Pressure

Sep -09

Source:

Assessing Diageo (LSE:DGE) Shares: Is the Current Valuation a Missed Opportunity?

Sep -09

Source:

Does Lloyds Offer More Value After Latest UK Interest Rate Decision?

Sep -09

Source:

HSBC sees gradual unwinding of OPEC+ voluntary cuts over next year

Sep -09

Source:

HSBC HOLDINGS PLC ANNOUNCES RESULTS OF ITS TENDER OFFERS FOR FOUR SERIES OF NOTES

Sep -09

Source:

Form 8.3 - UNITE GROUP PLC

Sep -09

Source:

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (2.02%)

6. Segments

United Kingdom and Europe

Expected Growth: 1.8%

Serco Group plc's 1.8% growth in the United Kingdom and Europe is driven by increasing demand for outsourcing services in the public sector, particularly in healthcare and defense. Additionally, the company's strategic acquisitions and investments in digital transformation have enhanced its service offerings, contributing to revenue growth.

North America

Expected Growth: 2.2%

Serco Group plc's 2.2% growth in North America is driven by increasing demand for outsourced services in the public sector, particularly in defense, healthcare, and transportation. The region's growing need for efficient and cost-effective solutions, coupled with the company's strategic acquisitions and partnerships, have contributed to this growth.

Asia Pacific

Expected Growth: 2.5%

Serco Group plc's 2.5% growth in Asia Pacific is driven by increasing demand for outsourcing services in government and private sectors, particularly in Australia and Singapore. Growing infrastructure development and urbanization in the region also contribute to the growth, as well as the company's strategic partnerships and investments in digital transformation.

Middle East

Expected Growth: 1.5%

In the Middle East, Serco Group plc's 1.5% growth is driven by increasing demand for outsourced services in the region, particularly in the defense and transportation sectors. The company's strong relationships with government clients and its ability to provide cost-effective solutions are key growth drivers. Additionally, the region's infrastructure development and urbanization initiatives are creating new opportunities for Serco's services.

7. Detailed Products

Defence

Serco provides defence services including military base management, logistics, and operational support to military forces.

Justice

Serco provides justice services including prison management, electronic monitoring, and community justice services.

Immigration

Serco provides immigration services including asylum seeker accommodation, immigration detention centres, and border control services.

Transport

Serco provides transport services including rail, bus, and ferry operations, as well as traffic management and parking services.

Health

Serco provides health services including healthcare facilities management, patient transport, and healthcare consulting services.

Citizen Services

Serco provides citizen services including customer service centres, contact centres, and back-office processing services.

Facilities Management

Serco provides facilities management services including property maintenance, catering, and cleaning services.

8. Serco Group plc's Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Serco Group plc is medium due to the presence of alternative service providers in the industry. However, the company's strong brand reputation and diversified service offerings mitigate this threat to some extent.

Bargaining Power Of Customers

The bargaining power of customers is low for Serco Group plc due to the company's strong relationships with its clients and the lack of concentration in the customer base.

Bargaining Power Of Suppliers

The bargaining power of suppliers is medium for Serco Group plc due to the presence of multiple suppliers in the market. However, the company's large scale of operations and diversified supplier base mitigate this threat to some extent.

Threat Of New Entrants

The threat of new entrants is low for Serco Group plc due to the high barriers to entry in the industry, including the need for significant capital investment and regulatory compliance.

Intensity Of Rivalry

The intensity of rivalry is high for Serco Group plc due to the presence of several established players in the industry, leading to a competitive bidding process for contracts.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	25.08%
Debt Cost	5.89%
Equity Weight	74.92%
Equity Cost	5.89%
WACC	5.89%
Leverage	33.48%

11. Quality Control: Serco Group plc passed 7 out of 9 key points

Strong Liquidity

Low Debt

Strong Interest Coverage

Healthy Cash Flow

Operating Efficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Elis

A-Score: 6.1/10

Value: 6.8

Growth: 5.9

Quality: 5.0

Yield: 3.8

Momentum: 7.5

Volatility: 8.0

1-Year Total Return ->

Serco

A-Score: 5.7/10

Value: 4.2

Growth: 5.1

Quality: 3.3

Yield: 3.1

Momentum: 10.0

Volatility: 8.7

1-Year Total Return ->

Intertek

A-Score: 5.5/10

Value: 3.8

Growth: 4.4

Quality: 5.9

Yield: 5.0

Momentum: 5.0

Volatility: 9.0

1-Year Total Return ->

Sodexo

A-Score: 4.7/10

Value: 7.6

Growth: 3.9

Quality: 3.7

Yield: 7.5

Momentum: 0.0

Volatility: 5.3

1-Year Total Return ->

ID Logistics

A-Score: 4.2/10

Value: 3.4

Growth: 7.9

Quality: 2.5

Yield: 0.0

Momentum: 4.0

Volatility: 7.7

1-Year Total Return ->

InPost

A-Score: 3.5/10

Value: 4.0

Growth: 8.0

Quality: 5.1

Yield: 0.0

Momentum: 0.5

Volatility: 3.3

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

-7.59%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

5.89%

Serco Group plc - GB0007973794

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on SRP

1.c. Company Highlights

Less Volatile

Strong Momentum

Fairly Valued

Average Growth

Stable Momentum

Revenues Miss

Weak Momentum

Earnings Miss

Lower Quality

Average Quality

Average Yield

Earnings Beats

2. Serco's Strong FY 2025 Performance Driven by Defence and Growth Initiatives

Segmental Performance

Guidance and Outlook

Valuation and Dividend

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (2.02%)

6. Segments

United Kingdom and Europe

Expected Growth: 1.8%

North America

Expected Growth: 2.2%

Asia Pacific

Expected Growth: 2.5%

Middle East

Expected Growth: 1.5%

7. Detailed Products

Defence

Justice

Immigration

Transport

Health

Citizen Services

Facilities Management

8. Serco Group plc's Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: Serco Group plc passed 7 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

2.95$

Current Price

2.95$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA