Serco Group: 1H pre-close reiterates FY guidance

Research evidence excerpt

Serco Group: 1H pre-close reiterates FY guidance

Jane L Sparrow AC Europe Equity Research

(44-20) 3493-7101 25 June 2026 C A Z E N O V E

jane.sparrow@jpmorgan.com

Investment Thesis, Valuation and Risks

Serco Group (Neutral; Price Target: 302p)

Investment Thesis

Serco is a well-run government outsourcer. Serco’s revenue growth (target 4-6%) is largely

acyclical given the exclusive focus on government customers, and should be supported by

the company expanding its scope into attractive target markets such as US defence. We see

scope for margins to improve further, chiefly due to an improving mix (more US) and also

due to a greater focus on in-contract profitability management. We expect Serco will

continue to utilise its FCF for M&A and buybacks. The repositioning of Serco over the last

few years to be more focused on the higher-margin and faster-growing sectors within the

portfolio positions Serco well for long-term top-line growth and margin improvement;

however, to a large extent this has already been reflected in the re-rating the Group has seen

in the last 12mths.

Valuation

Serco’s share price re-rated (from c10x to c15x 12m forward PE during 2025. While the

valuation remains below the LT average, if we adjust this average to exclude 2015-17 (when

the valuation was elevated due to depressed earnings in the early stages of a major

restructuring and turnaround), the shares are now broadly in line with the average. Our price

target of 302p is based on a FY27E PE of 15x.

Risks to Rating and Price Target

Upside risks to our investment thesis include: a higher than expected level of contract wins

accelerating organic growth; a slower rate of reduction in the AASC contract than we

currently forecast; earnings-enhancing M&A in high-margin sectors. Downside risks to our