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Investing.com -- Serco Group plc (LON:SRP) has secured a series of new contracts from the U.K. Ministry of Defence worth more than £1 billion, reinforcing its position in the government outsourcing sector, sending shares up over 4% on Thursday.
Analysts at RBC Capital Markets, who rate the stock "outperform" with a price target of GBp 230, said the latest wins support the company’s near-term growth outlook.
The contracts span three areas of maritime support for the Royal Navy. The largest is a £850 million agreement over 10 years to deliver in-port services at HM Naval Bases in Devonport, Portsmouth and the Clyde, including HMNB Faslane.
Under the terms of the contract, Serco will provide 24 new vessels to modernize the Royal Navy’s existing fleet.
The services will include vessel towage, passenger transfer and barge and tank cleaning at Portsmouth and Devonport.
The second contract, valued at £70 million over five years, covers inshore support to military training and exercises at the British Underwater Test and Evaluation Centre.
A third contract, worth £110 million over 10 years, involves offshore support to military training and exercises.
This includes the provision of two specialist ocean-going vessels for regional and global deployment.
The contracts, while replacing existing agreements, include an expanded scope that is approximately 25% larger overall.
A major addition is the vessel replacement program, which is set to begin shortly and will be more heavily weighted toward the early years of the contract term.
RBC estimates that this program alone will contribute between 1% and 1.5% of group revenue in 2025.