Market report: Serco rises on hopes Soames will go big game hunting

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Embattled outsourcer Serco, still reeling from its infamous tagging scandal and a string of profit warnings, will need to focus on “hunting elephants” if it is to keep its turnaround on track. 

The assessment from UBS is not advice for the FTSE 250 firm to change its business model, but rather a warning that it must win one of the four big contracts its management have in their sights over the next 12 months.

Those are three major light rail and tram operations in the Middle East, which make up around 30% of the value of Serco’s bid pipeline, and a contract to operate the Defence Fire & Risk Management Organisation,  the Ministry of Defence’s fire rescue service.

Even then, UBS’s Rory McKenzie has doubts it will be enough to prevent revenues from tumbling.

“The total bid pipeline is far outweighed by the rebid risks on existing revenues, so even assuming a 85% retention and rising win rate (from 10% today to around 30% in time) we see revenues fail to rise above current levels until 2019,” he said in a note.

The shares, which have recovered 35% this year, rose 2p today to 131.5p as McKenzie lifted his target price slightly to 131p, arguing that Serco is “on a path to improvement, but we think the pace of the recovery will not be as fast as bulls would hope”.

It came as JPMorgan reduced its holding to below 3%. The big daily swings from blue-chip stocks feel like a distant memory to traders, still either on holiday or taking the chance to take their foot off the pedal while others are.

The FTSE 100 advanced a woeful  4.08 points to 6863.03, though there was some action among miners, whose shares reversed in line with commodity prices.

These include gold and silver, taking the shine off Fresnillo, down 125p at 1814p, and Randgold, off 420p at 7930p.

EasyJet moved 8p higher to 1113p even as Credit Suisse dismissed speculation of a potential bid from AerCap, the world’s largest aircraft-leasing company.

AIM traders latched onto Myanmar-focused social-media tiddler MySquar, which rose 0.27p to 3.65p.

The company said its MyFish game has attracted 500,000 users in just three weeks and expects to have five million for all its applications by the end of the year. 

MySquar’s house broker Beaufort said having four million unique users is the point at which potential buyers start to sit up and take notice.

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August 22, 2016 |
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