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Investing.com -- Serco (LON:SRP), a renowned service company, revealed yesterday afternoon that it has been chosen by the UK Ministry of Defense (MOD) to provide its new recruitment solution for the Royal Navy, the British Army, the Royal Air Force, and Strategic Command. This contract signifies the first time recruitment for the military has been consolidated.
The contract is estimated to be worth £1.0bn over the initial seven-year term. The value could potentially reach up to £1.5bn if the MOD decides to extend the contract for three additional one-year periods after the initial term.
It is anticipated that a 21-month mobilisation period will start in April 2025, with most of the associated costs being charged to profit as they occur. The new service is scheduled to begin in early 2027.
This contract is the largest in Serco’s pipeline and is expected to contribute to an annual growth rate of approximately 3% from 2027. This adds to the company’s strong visibility, especially since there are no major rebids expected for the next 3.5 years.
This announcement follows the recent $327m acquisition of MT&S in US Defense, which was seen as a strategic move to strengthen Serco’s position and diversify its US Defense capability. As a result of these developments, 2026 forecasts were raised by 6%.
According to RBC Capital Markets analysts, the shares of the company have not performed as well as expected given the positive news.
RBC continues to view Serco as significantly undervalued considering its defensive characteristics, strong visibility, and excellent free cash flow generation and return on invested capital metrics.
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