Serco: Defence spending pushes order pipeline to 10-year high
Government services firm Serco’s order pipeline has risen to the highest in more than a decade as countries across Europe and North America ramp up their defence budgets.
The firm’s pipeline stood at £11.9bn, up six per cent compared to the end of last year, with as much as 80 per cent of its order intake relating to defence.
That was helped along by three major contract wins with the UK’s Ministry of Defence, which totalled more than £1bn.
“As defence customers seek expanded, modern, resilient, mission-ready solutions, we are able to deploy our extensive experience, extended capabilities and increasing scale to support them,” Serco said, adding it continues “to see significant opportunity in the sector”.
The FTSE 250 firm reported revenues of £2.4bn for the first six months of the year, up 5 per cent on last year, while underlying operating profit rose 2 per cent to £146m.
Serco unveiled fresh plans for a £50m share buyback, while its interim dividend was increased by eight per cent to 1.45p.
Serco’s expansion into Europe
In May, the company completed the acquisition of US firm Northrop Grumman’s mission training and satellite ground network communications software business, MT&S, in a $327m (£244m) deal.
Serco chief exec Anthony Kirby told CityAM: “In Europe, our business in defence is pretty small but we have ambitions to grow in Europe, particularly through our MT&S acquisition. We’re looking to be able to import our capability from the US and the UK predominantly into Europe.
“If you take into account the commitments that countries have made in terms of the 5 per spend spending commitment…even if only half of that is recognised, the pipeline of opportunities moving forward continues to be significant and will grow in our view.
“All the acquisitions that we’ve made since 2019, the majority of those have been in the defence space. I expect our M&A activity is likely to be more concentrated in defence. When I run a slide rule over the targets and opportunities…I would be looking at businesses that sit within significant growth areas which are likely to be within defence and migration services.”
Serco’s stock soared on the back of its stellar results, rising 8.3 per cent to 227p in early London trade. The firm’s shares are up by more than 40 per cent since the start of the year.