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 driven by renewed confidence from analysts, reflected in a modest increase in its fair value estimate from £2.45 to £2.52 per share. The company's future prospects are viewed favorably, with some analysts expressing optimism. Additionally, the absence of significant negative news and a quiet market can be seen as a positive indicator. However, it's essential to note that some analysts remain cautious about the company's future performance. A recent earnings release was not explicitly mentioned, but the updated fair value estimate suggests a positive outlook.

1.c. Company Highlights

Last Price	259.2
Change Percentage	-1.82%
Open	265.8
Previous Close	264
Market Cap ( Millions)	2631
Volume	358442
Year High	265.8
Year Low	136.2
M A 50	246.5
M A 200	205.64

FCF Yield	15.30%
Dividend Yield	1.33%
ROE	5.67%
Debt / Equity	109.84%
Net Debt / EBIDTA	321.59%
Price To Book	3.13
Price Earnings Ratio	56.09
Price To FCF	6.54
Price To sales	0.55
EV / EBITDA	14.24

2. Serco Delivers Strong Half-Year Results with 5% Revenue Growth

Serco has reported an excellent performance in its 2025 half-year results, with revenue of £2.4 billion, up 5% on a constant currency basis, and an underlying operating profit of £146 million, representing a margin of 6%. The order intake was £3.2 billion, with a book-to-bill ratio of over 130%. The company's top-line growth is driven by strong demand from governments seeking high-quality and efficient services, with an 8% CAGR since 2019.

Publication Date: Aug -12

                                    📋 Highlights
                                    Revenue & Profit Growth:
                                                2025 H1 revenue reached £2.4 billion (+5% constant currency), with underlying operating profit of £146 million (6% margin).
Order Intake & Pipeline:
                                                £3.2 billion order intake (130% book-to-bill ratio), UK/Europe achieved 200% book-to-bill ratio, and a £11.9 billion total pipeline.
Defense Sector Expansion:
                                                Defense now exceeds 40% of portfolio, with a £4.6 billion pipeline in North America and strategic acquisition of MT&S for synthetic training and satellite capabilities.
Financial Strength:
                                                Net debt reduced to £259 million (leverage 0.9x EBITDA), 84% profit-to-cash conversion, and £4.9 billion full-year revenue guidance (+5% CAGR since 2019).

                                

Geographical Spread and Priorities

Serco has a strong geographical spread, working with governments in over 20 countries, and delivers critical non-discretionary complex services that can't be easily switched off. The company's priorities are growth, competitiveness, and operational excellence, which are mutually reinforcing. Anthony Kirby highlighted progress in these areas, including a 95% contract retention rate, a pipeline of £11.9 billion, and the introduction of digital and AI solutions.

Financial Performance and Guidance

Nigel Crossley, Serco's Group Chief Financial Officer, presented the detailed financials, highlighting the company's strong revenue growth, profit margin, and return on invested capital. The company has delivered strong cash flow, with 84% of profit converting to cash in the first half of the year. Net debt finished the period at GBP 259 million, with leverage at 0.9x EBITDA, below the target range of 1 to 2x. Guidance for the balance of 2025 remains unchanged, with revenue expected to be around GBP 4.9 billion, a 5% increase on a constant currency basis.

Defense Business and Capital Allocation

The company's defense business now accounts for over 40% of the portfolio, with a strong pipeline of opportunities. The company has invested in defense capabilities, including the acquisition of MT&S, which has enhanced its capability offering in synthetic training and exercise simulation, as well as ground satellite communications and space. In terms of capital allocation, the company's priority is to look for bolt-on M&A opportunities that will help drive future organic growth.

Valuation

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: 5.8/10

Value: 6.5

Growth: 5.9

Quality: 4.6

Yield: 3.1

Momentum: 6.5

Volatility: 8.0

1-Year Total Return ->

Serco

A-Score: 5.6/10

Value: 4.6

Growth: 5.1

Quality: 3.0

Yield: 3.1

Momentum: 9.0

Volatility: 9.0

1-Year Total Return ->

Intertek

A-Score: 5.3/10

Value: 3.4

Growth: 4.4

Quality: 5.9

Yield: 5.0

Momentum: 3.5

Volatility: 9.7

1-Year Total Return ->

Sodexo

A-Score: 5.0/10

Value: 7.6

Growth: 3.9

Quality: 3.7

Yield: 8.1

Momentum: 0.5

Volatility: 6.0

1-Year Total Return ->

ID Logistics

A-Score: 4.4/10

Value: 3.6

Growth: 7.9

Quality: 2.4

Yield: 0.0

Momentum: 5.0

Volatility: 7.7

1-Year Total Return ->

InPost

A-Score: 3.5/10

Value: 3.6

Growth: 8.0

Quality: 5.3

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

-7.81%

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 Delivers Strong Half-Year Results with 5% Revenue Growth

Geographical Spread and Priorities

Financial Performance and Guidance

Defense Business and Capital Allocation

Valuation

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

2.59$

Current Price

2.59$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA