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SRP: Defense Contracts Will Support Steady Outlook With Balanced Long Term Prospects

Expanding North American And European Contracts Will Unlock Future Potential

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SRP
AnalystConsensusTarget
Not Invested
Published 10 Mar 2025

Update shared on 11 Dec 2025

Fair value Increased 0.79%
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AnalystConsensusTarget's Fair Value
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1Y
81.5%
7D
-1.1%

Analysts have nudged up their price target on Serco Group by approximately 1 percent in sterling terms, citing a slightly lower implied discount rate, marginally stronger long term revenue growth assumptions, and a modestly higher future P E multiple that more than offset a broadly unchanged profit margin outlook.

What's in the News

  • Serco secured a new contract worth around £500 million to continue managing HMP Dovegate in Staffordshire for 12 years, with options for three additional one-year extensions, following a competitive procurement process (Key Developments).
  • The renewed HMP Dovegate contract includes service enhancements, such as new education delivery models and additional job opportunities beyond the current workforce of more than 500 staff members (Key Developments).
  • Serco's MT&S business, acquired from Northrop Grumman, won a Single Award IDIQ contract from the US Air Force for the AFMS3 programme, with a ceiling value of up to $972 million over five years (Key Developments).
  • Under AFMS3, MT&S will provide mission critical modelling, simulation and training services at over 20 US Air Force locations, supporting synthetic training exercises and enhancing warfighter readiness (Key Developments).

Valuation Changes

  • Fair Value increased modestly from £2.52 to £2.54 per share, reflecting a slightly more optimistic long term outlook.
  • The Discount Rate edged down slightly from 7.78 percent to 7.74 percent, implying a marginally lower perceived risk profile.
  • Revenue Growth nudged up fractionally from 3.68 percent to 3.68 percent, indicating a very small uplift in long term growth expectations.
  • Net Profit Margin slipped marginally from 3.89 percent to 3.89 percent, leaving overall profitability assumptions broadly unchanged.
  • Future P/E has risen slightly from 15.46x to 15.56x, suggesting a modestly higher valuation multiple applied to Serco's expected earnings.

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