Broker snap: HSBC downgrades Serco, sees muted growth for outsourcers

4th Jun 2013 10:05

HSBC has retained its cautious view on UK public-sector outsourcers and has downgraded its rating for Serco from 'neutral' to 'underweight'.In a sector review, the broker said that the overall level of public-sector contract awards over the past six months has been "weak" and its analysis suggests that this will continue in 2013 and early 2014."Our analysis of the Official Journal of the EU (OJEU) continues to suggest stable and fairly pedestrian demand for outsourced public sector services. "There is little evidence of structurally higher demand for services from the UK public sector, and while there are inevitably a handful of potentially large and interesting contracts, the general picture is one of more subdued and specific demand for outsourcing."Over the next 12 months, the bank expects to sector to grow by a meagre 5.0%, "barring a clutch of large trophy contracts".HSBC remains 'neutral' on Capita (target price left at 1,050p) and MITIE (target price cut from 280p to 260p), and has retained an 'underweight' rating for G4S (target price kept at 210p).However, Serco's downgrade comes after the stock has re-rated despite poor order income in the first quarter. HSBC also highlighted "heightened renegotiation risk" on 12% of its revenue base over the next 18 months.Serco was trading flat at 607p by 10:04.