Broker snap: Serco a 'buy' after MoJ contract extension, says Panmure

23rd Dec 2013 10:53

Serco has made positive steps to rebuilding its reputation with the UK government after winning a contract extension with the Minister of Justice (MoJ), according to Panmure Gordon.The service group expanded its contract to build and run an extension to HMP Thameside in south-east London, worth a total of £120m over 22 years, including the £36m it will cost to build the prison.Serco signed the original £415m, 26-year deal in July 2010. The announcement came a day after it was told to pay back £68.5m to the government for overcharging on contracts.The company was suspended from winning new contracts after it charged for electronic tags on criminals not being monitored, still in prison or even dead.Panmure recommended a 'buy' rating and raised its target price to 550p following the news of the contract extension with MoJ. "The company has not quite got a clean bill of health, with the approval of the Corporate Renewal Programme still outstanding but likely to be approved in January," said Pamure analyst Mike Allen. "We have factored in the exceptional costs related to the government fine, and believe the increased balance sheet leverage is not a major concern at this stage."Shares rose 2.39% to 483.30p at 11:15 on Monday.RD