Multibagger Serco Issues Results

LONDON -- Serco (LSE: SRP.L  ) rose 1% to 566 pence in early London trade after the outsourcing group issued its half-year results.

The FTSE 100 firm reported revenue up 4% to 2.34 billion pounds and underlying operating profit up 4% to 140 million pounds. The headline performance excluded reorganization costs of 16 million pounds and a 31 million pound gain following various disposals. The dividend was lifted 6% to 2.65 pence per share.

Serco confirmed it had experienced "challenging" conditions within its U.S. operations following government cutbacks; profits in the stateside division fell 20%. However, the wider first-half performance was supported by new contract wins valued at 3.7 billion pounds. Notable new business included ferry services for the Northern Isles in Scotland, support for NHS Suffolk community health service, and predeployment training for the British Army.

Throughout the first six months of 2012, Serco's order book grew from 17.9 billion pounds to 19.4 billion pounds.

Christopher Hyman, Serco's chief exec, said:

I am pleased with the overall performance of the business over the last six months, particularly the quality and efficiency of the services delivered by our people. ... Our business in Australasia and the Middle East continues to grow strongly and, while significant challenges in the U.S. remain, we see conditions in the U.K. starting to improve. The recent level of new contract wins across the group will help us deliver the anticipated strong financial performance in the second half of the year.

Serco's latest results extend the company's legendary financial track record and its status as a textbook growth share. During the last two decades, annual revenue has advanced from 150 million pounds to nearly 5 billion pounds, and underlying profits have ballooned from 7 million pounds to surpass to 200 million pounds.

Indeed, 20 years ago, the shares traded at the equivalent of just 20 pence. With dividends reinvested, smart investors who spotted the early potential have since earned 20% compound annual returns, according to Bloomberg.

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Maynard does not own any share mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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