Broker snap: Near-term challenges baked into price at Serco

22nd Nov 2013 11:26

Analysts at Credit Suisse today moved to raise their recommendation on shares of Serco to outperform from neutral on the back of the "apparently improving political and press sentiment over recent days" and the 17 per cent fall in its share price in the year-to-date. In their opinion the decline in its share price means that the stock price has already absorbed most of the company's near-term challenges, while the firm is likely to remain a key long-term supplier to the central government and as such supporting the company's long term growth potential.The Swiss broker highlighted how key recent events, such as the Public Accounts Committee hearing, reflects improving political sentiment towards Serco. As regards potential near-term price catalysts, Credit Suisse pointed out that the UK government reviews should be completed by early December. Full year results are due in the first quarter of 2013, it added. Their discounted cash flow-derived (DCF) price target remains at 500p. "We think that at 430.7p the risk reward looks attractive with 20% downside to our bear case and 58% upside to our bull case. At the current price Serco trades at 11.3 times 2014 estimates, representing a 28% discount to its historic median of 15.7 times," analysts Andy Grobler and Thomas Burlton said.As of 11:34 shares of the support services firm were up by 0.16% to the 441p mark. AB