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Market losing patience with service giant; should you do the same?
Thursday 02 Mar 2017 Author: Daniel Coatsworth

Serco (SRP) 116.33p

Loss to date: 17.5% 

Original entry point:  Buy at 141p, 22 December 2016

Expectations were very low ahead of Serco’s (SRP) results, so why did its shares fall 18% when the figures were published on 22 February? To be honest, we’re not sure as results were in line with expectations and there was no change to the company’s earnings guidance for the 2017 financial year.

SERCO GROUP - Comparison Line Chart (Rebased to first)

We chose to include Serco as one of our tips of the year in 2017 in the belief that the market would focus on growth prospects rather than past problems. The shares have so far gone the opposite way than we’d hoped.

The company has flagged it is chasing six large contracts. Decisions will be made on these contracts in the next 12 months, we understand. They include transport work in the Middle East and prison work in Australia. Some of these deals, if won, may not impact profit until 2019.

We have full confidence in the management team; the key issue is the pace of the turnaround. Serco says its road to recovery will be long. Anyone who followed our suggestion to buy in December 2016 needs to be very patient or cut their losses now. We remain confident that Serco’s shares will end the year higher than when they started. (DC)

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