Broker snap: Serco defensiveness applauded

11th Aug 2009 09:18

The recent tendency of investors to favour cyclical stocks over defensives has gone too far according to Charles Stanley, which has lifted its target price on the outsourcing group Serco to 460p from 440p.Charles Stanley expects Serco, whose projects include running London's Docklands Light Railway, to post interim profit growth of 32% to £89m when it delivers results on August 26."We believe that the government's financial problems will encourage it to outsource as much as possible to the private sector over the next two years," the broker, which has a 'buy' rating on Serco, says.It notes that Serco is standing at a price/earnings ratio of 14.5, which puts it a discount to fellow outsourcing group Capita.