ii view: buoyant Serco doubles share buyback target

First-half results to 30 June

• Currency adjusted revenues up 4% to £2.51 billion
• Currency adjusted underlying operating profit up 9% to £157 million
• Interim dividend up 10% to 1.6p per share

2026 Guidance:

• Continues to expect revenue for the full year of around £5 billion
• Continues to expect full year adjusted operating profit of around £300 million
• Increasing annual share buyback programme this year to £150 million from £75 million

Chief executive Anthony Kirby said:

"The Group achieved good profitable growth in the period, which reflects further strategic and operational execution.

"Looking ahead, we are on track for our full-year guidance. Our diverse portfolio, international footprint and breadth of capabilities position us well to capitalise on the continued structural drivers of demand for our services."

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ii round-up:

Ongoing strong demand for defence services helped Serco Group (LSE:SRP) double its planned 2026 share buyback programme to £150 million, with an overall order book of £14.6 billion increasing from £14.5 billion since late December.

The operation of modernised support vessels for the UK Royal Navy helped drive organic defence growth of 10%. That fed into a gain of 4% for first-half currency adjusted revenues to £2.51 billion, fuelling a 9% hike in adjusted operating profit to £157 million.

Shares in the FTSE 250 company rose 4% in post results UK trading having come into these latest numbers down by just over a tenth so far in 2026. Fellow outsourcer Capita (LSE:CPI) has dropped by just over a third during that time. The FTSE 250 index is up by close to 11% year-to-date.  

Serco provides services to government departments including defence, space, immigration, justice, healthcare, and customer services in both the UK and overseas.

An interim dividend of 1.6p per share, payable to eligible shareholders on 2 October, is up 10% from a year ago.

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Contracts in the pipeline worth £12.8 billion is the highest in more than a decade, aided by a record £8.1 billion from North America.

Contract developments during the period included further facilities work for US Army Engineers, as well as a new $109 million (£83 million) contract award to further assist US Medicare & Medicaid insurance health services.

The Hook, Hampshire headquartered company continues to expect annual revenue of around £5 billion this year, generating operating profit of around £300 million. That compares with £4.9 billion and £272 million respectively in 2025.

A full-year trading update is likely to be announced mid-December.

ii view:

Employing over 50,000 people, Serco helps governments design services, integrate systems, outsource case management and engineering services, and oversee assets and facilities. The UK and Europe generated 53% of revenue in 2025. That was followed by North America at 30%, Asia Pacific and Australia at 13%, and the Middle East the balance of 4%.

For investors, increasing revenues linked to defence activities may deter some investors on ethical grounds. Reputational and executional risk in running services such as immigration detention centres should not be forgotten. A forecast price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap, while changes of government can bring new priorities and arrangements.

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On the upside, a pipeline of potential business at a new decade high points to robust demand. Financially stretched national finances following the pandemic now continue to leave many governments looking to reduce spending and lower debt. A diversity of customer sector and geographical regions exists, while total shareholder returns of £760 million since 2021 and a forecast dividend yield of close to 2% are not to be ignored.

For now, and despite risks, varying government initiatives globally to reduce national debt should continue to prove supportive for this major UK and overseas outsourcer.  

Positives:

• Diversity of both services offered and geographical location
• Growing shareholder returns

Negatives:

• Contracts can come with reputational risk
• Currency movements can hinder

The average rating of stock market analysts:

Buy