Serco delights investors with upgrade on profits

PUBLIC service outsourcer Serco was on the rise after releasing a surprise trading update to tell investors it had performed better than expected.

FSTE 250-listed Serco, which provides services from staffing prisons to building military facilities, had previously said profit would be around £80m.

It has now upgraded this to between £90m and £95m.

It said a strong performance, cost-cutting and ‘other commercial negotiations’ would contribute to a 2018 financial outcome that was better than the market was expecting. Shares shot up 10.8pc, or 9.5p, to 97.8p.

Russ Mould, investment director at AJ Bell, said the update suggested Serco was ‘once again heading in the right direction’.

It had previously suffered from financial issues, problems with the contracts it was fulfilling and customers losing faith in the business after a tagging scandal which saw it overcharge the Government by £68.5m.

The collapse of fellow outsourcer Carillion earlier this year also rocked investors’ confidence in the whole business model.

Shares are still 77.9pc lower than they were five years ago, before a series of profit warnings took the firm to the brink of collapse.

Although performance seemed to be heading in the right direction, Mould added that the next step would be to see whether the company could return to positive cash generation and resume dividend payments. The last time it paid a dividend was 2014.

National Grid, which supplies energy in the UK, had good news as the industry watchdog Ofgem allowed it to recover millions from consumers. The money will be used to replace a gas pipeline across the Humber Estuary, which is critical to the supply of North Sea gas.

National Grid had previously wanted to claw back £140m, which Ofgem had refused on the grounds it was too expensive. But the regulator yesterday overturned its decision, allowing the company to claim the slightly lesser sum of £111m, after seeing evidence suggesting ‘that the resilience of the energy system could be impacted if the pipeline isn’t replaced’.

At the same time, Ofgem still refused to allow National Grid to recover £123m for the maintenance of gas compressors. It has limited the amount National Grid can claim for these repairs to £500,000. National Grid’s investors showed relief that the company would at least be able to recover some costs for the Humber upgrade, as shares climbed 1.5pc, or 11.4p, to 791.4p.

But the gains were not enough to lift the FTSE 100, which ended the day down 0.47pc, or 35.24 points, at 7510.2. Over the week, the index was still up 0.3pc. Shaftesbury, which owns a 15-acre portfolio of property in London’s West End, brushed away gloom in the retail sector by saying it had seen ‘robust trading and footfall’. Its Central Cross centre, based in Chinatown between Covent Garden, Leicester Square, Soho and Tottenham Court Road, was 76pc let or under offer.

The Thomas Neal Warehouse in Seven Dials, a former 1980s shopping centre, was under offer from a single retailer who wants to make the giant location its flagship store. And its 57 Broadwick Street property, in Soho, was fully let.

Shaftesbury said it had bought £50.4m worth of property since April this year alone. Shares edged up 0.1pc, or 1p, to 905.5p.

On London’s junior market AIM, retail marketing agency Space

and People plummeted 33.3pc, or 10p, to 20p after it announced revenue was down 20pc to £3.85m in the first half of the year.

The firm swung to a loss of £0.1m from a profit of £0.2m last year, despite cutting jobs.