Britain's Serco buoys shares with outsourcing outlook

Britain's Serco buoys shares with outsourcing outlook
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By Elisabeth O'Leary

EDINBURGH (Reuters) - An upbeat outlook on Wednesday from Serco lifted shares in the British outsourcer, which runs government services in defence, justice, immigration, transport and health, bucking recent pressure on the sector due to political uncertainty.

Serco said strong growth in overseas markets was offsetting slower prospects at home because of Brexit. Combined with cost cutting, this meant its 2017 underlying trading profit would be at the top end of an earlier forecast range.

Although Chief Executive Rupert Soames was positive about the prospects for Serco once Britain's exit from the European Union is decided, he said the pipeline was unpredictable.

"Some markets, and in particular the UK, are currently growing more slowly than their former trend rate," he said in a statement.

"The (UK) government is incredibly distracted at the moment," he later told Reuters.

"That's a threat, but once Brexit is done, the one thing that is absolutely certain is that there is going to be a whole lot more government going on in the UK, and we're going to have to have different arrangements at borders," he added.

Soames cited the need to set up new regulatory agencies and new environmental compliance rules as reasons to be more positive on the British market in the future.

Serco, which is undergoing an overhaul started three years ago after a series of profit warnings prompted a reset of its strategy, said 2017 revenues would be just under 3 billion pounds, while it also saw good profit growth in 2018 and 2019.

Shares in the company, which had fallen by nearly 16 percent in the last three months, were up by 5.6 percent to 100.7 pence at 1051 GMT, after earlier rising as much as 13 percent.

Outsourcers have been grappling with global political uncertainty which is hampering the pace of decision-making in the public and private sector and increasing margin pressure.

Serco also announced the purchase of some of the UK healthcare facilities of debt-laden Carillion for about 47.7 million pounds.

It said the timing of reaching a long-term goal of 5 to 7 percent revenue growth and 5 to 6 percent profit margin would depend on when demand reverted to trend in its target markets.

Soames said Serco was rebalancing its business development budget away from the UK to target other countries but its pipeline of new bid opportunities, currently worth 4 to 5 billion pounds, would be "noticeably lower" by the year end.

Serco dropped out of a big Middle Eastern rail contract bid process earlier this year because it was too difficult to predict the level of risk, Soames said.

But its businesses abroad were otherwise performing well, with "green shoots" in its U.S. defence business.

(Reporting by Elisabeth O'Leary; editing by Kate Holton and Alexander Smith)

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