Serco rallies on Exane and Berenberg upgrade

17th Sep 2015 10:41

(ShareCast News) - Outsourcing group Serco got a lift from a double upgrade, as Exane BNP Paribas and Berenberg turned more positive on the stock.Berenberg upgraded the stock to 'hold' from 'sell', keeping the price target at 100p, following a 30% drop in the share price in the past six months and the company's announcement on Wednesay of the sale of its offshore BPO operations."We continue to believe Serco's turnaround story will be a long one and rebuilding margins to prior peaks will be difficult; however, we acknowledge that the downside risk to what we believe is the company's fair value looks limited now," it said.Berenberg said that excluding a £30m deferred consideration and after transaction costs and fees, the disposal of the BPO unit to Blackstone for a total consideration of £250m is equivalent to a £211m cash inflow which it estimates should lower the company's full-year 2016 net debt to EBITDA from 2.8x to a more manageable 1.5x.Meanwhile, Exane BNP Paribas upgraded Serco to 'outperform' from 'neutral' on valuation grounds, with an unchanged price target of 140p.It said multiples remain stretched and the visibility on earnings recovery will remain poor for years to come."Nonetheless, we believe that Serco now represents a compelling value proposition for those investors with the patience to ride it out."At 1054 BST, Serco shares were up 2.8% at 108.80p.