Serco capped off a strong year for the stock with an encouraging trading update that justifies the 70% rally so far in 2025.
Revenue is expected to rise 3% for 2025, and operating profit is set to come in at £270m.
However, it was guidance for next year that would have caught investors’ attention. Serco has forecast operating profits of £300m for the coming year, which would make its current £2.5bn market cap seem very good value.
Serco shares were 5% higher at the time of writing on Wednesday.
“Serco has delivered another solid, if unspectacular, set of results that underline the resilience of its government focused model. Profit guidance has been edged up and management is now flagging a stronger earnings trajectory into 2026, driven more by margin discipline and cash generation than by rapid top‑line growth,” said Adam Vettese, Market Analyst at eToro.
“On the positive side, Serco is converting a high proportion of profit into cash, carrying a manageable balance sheet and increasingly talking about capital returns, which should appeal to investors. The order book remains healthy and long dated, helped by recent contract wins across justice and defence.
“The flip side is that organic revenue growth is only low single digit, and the business remains exposed to political and contract specific risk, as shown by the goodwill impairment in Asia Pacific last year.
“Overall, the investment case rests on dependable government revenues, improving margins and disciplined capital allocation. Investors will be very happy with how Serco has performed this year, with shares trading at a 10 year high, and will be hoping for more of the same into 2026.”