Reuters: Hot Stocks: UPDATE 2-Dividend hike sends Serco shares soaring

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UPDATE 2-Dividend hike sends Serco shares soaring Mar 5th 2013, 11:14 Tue Mar 5, 2013 6:14am EST * Dividend up 20 pct to 10.1 pence, to pay more in future * FY pretax profit up 6 pct to 278.1 mln stg * Sees modest improvement in organic revenue growth in 2013 * Shares up 10.3 percent to top FTSE-100 index By Christine Murray LONDON, March 5 (Reuters) - British outsourcing firm Serco hiked its dividend by 20 percent and said it would pay out a bigger proportion of earnings to shareholders in the coming years, after it reported a pick up in revenue growth in the second half of 2012. Shares in the group, which runs facilities ranging from Britain's Atomic Weapons Establishment to immigration detention centres in Australia, jumped as much as 12 percent on Tuesday. Analysts had criticised Serco for not paying a high enough dividend, and some have also worried it could be hit by government spending cuts in Europe and the United States. However, Liberum Capital analyst Joe Brent said the dividend pledge was a sign of the company's confidence, although it could also be seen as signalling fewer opportunities for expansion. "If you were being cynical you'd say its a sign of lower growth, but the market will like it, definitely," he said. Serco raised its 2012 dividend to 10.1 pence a share and said it would pay out more to shareholders, at least for the coming years. The group said earnings covered its dividend payout 4.2 times and it planned to reduce this ratio to 2.5-3.0 times over the next three years. Serco reported a 6 percent rise in adjusted pretax profit for 2012 to 278.1 million pounds. Organic revenue, which excludes acquisitions, rose 3.3 percent, while margins edged up to 6.4 percent from 6.2 percent the year before. "The organic growth of 3 percent for the full year, if you dig into it, implies 8 percent for the second half so it enters 2013 with good momentum," said Liberum Capital's Brent. "It ticks all the boxes really." Serco presented a mixed picture across different geographies, returning to organic revenue growth in its core British market, but seeing a 14 percent plunge in the Americas, hit by concerns about budget cuts. Chief executive Chris Hyman said he was targeting new opportunities to provide frontline services in India, where Serco already has a substantial business process outsourcing (BPO) operation employing 47,000 people. "The frontrunners I believe will be transport, whether that's aviation or light rail, and probably healthcare following that," he told Reuters in a telephone interview. He added he had a team on the ground scouting out BPO opportunities in Brazil and was also looking at running welfare-to-work and healthcare programmes in Saudi Arabia, as the firm does in Britain. Hyman saw two opposing trends across Serco's markets. In the west, where budgets are tightening, he said Serco was being asked to maintain service levels at cheaper cost, whereas in the east and Brazil, where growth has been too fast for some clients to keep up, it is being asked to improve productivity. The firm forecast a "modest" improvement in organic revenue and a flat margin in 2013, which Berenberg analysts called "disappointing". At 1050 GMT its shares, which are on the cusp of dropping out of the FTSE 100 blue-chip index, were up 10.3 percent at 638.5 pence. Link this Share this Digg this Email Reprints

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