Investors in Serco Group plc (LON:SRP) had a good week, as its shares rose 5.3% to close at UK£1.89 following the release of its full-year results. It looks like a credible result overall – although revenues of UK£4.9b were what the analysts expected, Serco Group surprised by delivering a (statutory) profit of UK£0.18 per share, an impressive 28% above what was forecast. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. Readers will be glad to know we’ve aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Serco Group after the latest results.
See our latest analysis for Serco Group
Following last week’s earnings report, Serco Group’s ten analysts are forecasting 2024 revenues to be UK£4.78b, approximately in line with the last 12 months. Statutory earnings per share are expected to dive 27% to UK£0.14 in the same period. Before this earnings report, the analysts had been forecasting revenues of UK£4.78b and earnings per share (EPS) of UK£0.14 in 2024. The analysts seem to have become a little more negative on the business after the latest results, given the small dip in their earnings per share numbers for next year.
The consensus price target held steady at UK£2.29, with the analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. The consensus price target is just an average of individual analyst targets, so – it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Serco Group at UK£3.24 per share, while the most bearish prices it at UK£2.00. As you can see, analysts are not all in agreement on the stock’s future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that revenue is expected to reverse, with a forecast 1.9% annualised decline to the end of 2024. That is a notable change from historical growth of 11% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 5.8% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining – Serco Group is expected to lag the wider industry.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Serco Group. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting that it’s tracking in line with expectations. Although our data does suggest that Serco Group’s revenue is expected to perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year’s earnings. We have estimates – from multiple Serco Group analysts – going out to 2026, and you can see them free on our platform here.
You still need to take note of risks, for example – Serco Group has 2 warning signs (and 1 which is potentially serious) we think you should know about.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
