There are still risks. Serco may be a simpler business than it was but it must still manage large, long-term contracts carefully, as any mistakes could get expensive, while a substantial portion of group revenues are up for extension or re-tender this year. At least the strong order intake in the first half offers some reassurance on the latter front.
Serco still has plenty of long-term potential.
Questor says: hold
Share price at close: 158.1p
Update: DS Smith
John Maynard Keynes, the economist and keen investor, is reported to have once said: “When the facts change, I change my mind.”
Although there is debate as to whether he really did offer that pearl, there is even less certainty in this column’s mind that our investment thesis in January last year concerning DS Smith, the packaging firm, is playing out as intended. As a result, it may be time, reluctantly, to fold on the FTSE 100 firm.
Our initial premise was that the stock was too cheap, as it offered exposure to the rise (and rise) of e-commerce and a fat yield while we waited for debt reduction and improved earnings following the £1bn purchase of Europac in 2018.
Although the sale of a non-core plastic packaging business raised cash, helped to rein in borrowing and bolstered DS Smith’s “green” credentials, the rest of the story unfortunately has not moved on in such a convincing fashion (and there is still plenty of debt).