Serco's road to recovery likely to be long, says Cantor Fitzgerald

29th Apr 2014 10:19

Cantor Fitzgerald has said that another profit warning from Serco is 'highly concerning' and believes that the road to recovery is likely to be a long one for the outsourcing group.In an unexpected statement released after the close on Monday, Serco said that trading since the start of the year has been "more challenging than expected" and that forecasts may require a "material downward revision".It also said that there is a possibility that it would need to strengthen its balance sheet through an equity placing.The announcement came just days before new Chief Executive Rupert Soames is due to take up his role."We have expressed our concern in recent research notes over the reputational impact of Serco's government woes. Yesterday's statement seems to vindicate our view and suggests that Serco's problems are more deeply rooted than previously expected," said Cantor Analyst Caroline de La Soujeole."The timing of the statement - only a few days before Mr Soames' arrival - and the complete lack of details in statement is highly concerning in our view."She explained that her profit forecasts for Serco's 2014 financial year have been reduced by some 40% already since allegations of fraud on some UK government contracts were made public in July 2013.Concensus forecasts for this year currently pencil in net debt being 2.5 times operating profits. "We believe 3.0x is the levee at which Serco could be looking to raise funds," she said.The stock was down 21.4% at 317.9p by 10:44 on Tuesday.BC