Broker snap: Public sector cuts to benefit Serco

16th Jun 2009 12:02

Support services firm Serco is set to benefit from the tighter budgets under which the public sector will have to operate in future, reckons UBS.The Swiss bank said the shares have been on a good run since the beginning of May on the back of some contract wins, but there may still be a residue of unease about the company's accounting practices which is holding back the share price.Last year at the time of the company's interim results there were concerns that Serco's claimed increase in operating margins to 5.2% was more down to the sales of its stake in Kilmarnock Prison than an upturn in its underlying business. 'Although we feel the accounting concerns have eased our impression is that they continue to weigh in to the share price. The company continues to stress certain disposals and investments were one off and we now assume the first half of 2009 will deliver a cleaner set of results (although this cannot currently be confirmed),' UBS states.UBS believes the company is well placed to land more contracts this year, particularly in the public sector, where those companies that can promise to reduce costs for local authorities will have an opportunity to win business.UBS has raised its price target from 365p to 450p and upgraded its recommendation from 'neutral' to 'buy'.