DAVY VIEW

Serco does not report at the Q3 stage but is scheduled to give an update in December. While there are headwinds for all businesses at present (particularly wage inflation and supply issues), we see no material changes to full year or 2022E forecasts at present and anticipate both the December Capital Markets Day (CMD) and trading update to give comfort to what has been a disappointing recent share price. Serco has offered solid, contract-backed EPS upgrades through 2021 (+12% on the 2022E forecasts) and strong FCF – but the market continues to de-rate the stock.