Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Should You Buy Serco Group Today?

LONDON -- Shares in Serco Group  (LSE: SRP  ) have shot higher in recent weeks after the company boosted its dividend policy and posted excellent full-year results, the stock advancing 11% in less than a month and hitting a near-three-year peak of 634 pence in the process.

And I am convinced that the diversified support services play is in line to punch fresh multi-year highs, its move into lucrative new service areas and geographies helping to provide a great outlook for strong earnings growth.

Revenues leap in 2012 on exciting new opportunities
Serco announced earlier this month that revenue from ongoing activities leapt 8.1% to 4.8 billion pounds in 2012, driving adjusted pre-tax profit 6.1% higher to 278.1 million pounds.

The company reported excellent performance from its global "business process outsourcing" arm, which posted 12% organic revenue growth last year and a 40% increase in total turnover.

And rapid expansion into exciting new territories looks set to power sales growth in coming years. Serco noted that organic growth in Asia, the Middle East, Africa, and Australia came in at 22% last year, with total revenue rising 31% from 2011. These regions now account for 18% of group turnover.

2012's performance was not completely rosy, with organic revenue in the Americas slipping 14% as a result of reduced government spending. However, a solid 19.1 billion pound order book -- up from 17.9 billion pounds in 2011 -- provides excellent earnings visibility. And I believe that the company's entry into new geographies and sectors with excellent structural growth prospects should underpin stunning growth in coming years.

Dig into exciting dividend story
City brokers expect earnings per share to edge 2% higher in 2013 to 44 pence, before picking up speed thereafter to post growth of 10% in 2014 to 48 pence. And the company currently trades on a P/E ratio of 14.4 and 13.1 for 2013 and 2014 respectively, providing a decent discount to a forward earnings multiple of 17.8 for the broader support services sector.

Particularly exciting is the group's statement during the recent update that it plans to "accelerate dividend growth on the path to a higher payout ratio" due to its confident market outlook and strong financial position. Indeed, last year's 10.1 pence payout was up 20% from 8.4 pence in 2011. And analysts the dividend to rise to 11.6 pence and 14.2 pence in 2013 and 2014 correspondingly.

These shareholder payments also wield supreme protection, with dividend cover of 3.8 times and 3.4 times for each of the next two years running well ahead of the widely regarded security benchmark of 2.

Although prospective yields stand below the current 3.2% FTSE 100 average -- yields for 2013 and 2014 are estimated at 1.8% and 2.4%, respectively -- Serco's commitment to supercharging the dividend presents a compelling case for the longer term income investor.

The expert view to growth elsewhere
If you already hold shares in Serco Group and are looking to significantly boost your investment returns elsewhere, check out this special Fool report, which outlines the steps you might wish to take if you are hoping to become seriously rich from other shares.

Our "Ten Steps To Making A Million In The Market" report highlights how fast-growth small-caps and beaten-down bargains are all fertile candidates to produce tenfold returns. Click here NOW to enjoy this exclusive wealth report -- it's 100% free and comes with no obligation.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2337274, ~/Articles/ArticleHandler.aspx, 10/28/2016 8:54:04 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 11 hours ago Sponsored by:
DOW 18,169.68 -29.65 0.00%
S&P 500 2,133.04 -6.39 0.00%
NASD 5,215.97 -34.29 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/28/2016 8:32 AM
SRP $138.70 Up +1.00 +0.73%
Serco Group CAPS Rating: No stars