Liberum slashes target on Serco but sees turn-around potential

23rd Sep 2014 13:24

Analysts at broker Liberum have slashed their price target on outsourcing giant Serco due to the multiple issues which the company is facing.Nevertheless, they does see room for improvement.Foremost, consensus sales are under pressure from attrition and a lack of wins while margins are suffering from mix changes and adverse operational gearing.Furthermore, many of the largest contract wins are problematic, analysts Joe Brent, William Shirley and David Brockton explained to clients in a research note issued on Tuesday.As well, the pipe-line will take time to rebuild.However, there is scope to increase margins to at least the industry average and working capital can be squeezed to deliver cash."There is clear recovery potential," Liberum wrote.Even so, at 17 times' calendar year 2015 earnings-per-share the stock is "expensive" versus peers and history, Liberum said.Hence, they reiterated their 'hold' recommendation on the shares while at the same time loweringtheir target price to 300p from 350p beforehand.