Serco cost-cutting the key for Citi

1st Oct 2018 13:59

(Sharecast News) - Serco Group is making more progress on cost savings than Citigroup expected, leading analysts at the bank to upgrade the outsourcer's shares on Monday.Citi, which upgraded to 'neutral' from 'sell', said cost savings in the first half were £3-5m better than it had expected, with lots more still to come."Another £10m guided for 2019 looks set to more than offset Atomic Weapons Establishment downwards repricing," Citi analysts wrote, adding that the previous rating was based partly on the lower pricing in the renegotiated AWE contract with the UK government and partly on a wall of forthcoming rebids the company is due to make.Under the AWE contract, a Serco-led consortium manages the development, maintenance and manufacturing of warheads for the UK's strategic nuclear deterrent, as well as performing other roles around nuclear security. In Friday's trading update, Serco upped its full-year underlying trading profit guidance to £90-95m from the previous near-£80m and said full-year results should also to be boosted by a number of non-recurring trading items, such as end-of-contract settlements and other commercial negotiations.