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Summary
- As per the Confederation of British Industry data, the retail sales index improved to 4 in July 2020 from -37 in June 2020.
- The Bank of England is likely to assess the extension of the suspended dividends and share buybacks by the banks. The dividends and share buybacks are currently suspended until the end of the year.
- Serco Group outlined full-year FY2020 revenue to be close to £3.7 billion.
- Serco Group’s acquisition of the Naval Systems Business Unit positively impacted revenue growth.
- RPS Group expects the business performance to be supported by the Group’s exposure to government projects.
- RPS Group secured a revolving credit facility of £60 million in April 2020.
Given the above-market conditions, we would review two industrials stocks - Serco Group PLC (LON:SRP) & RPS Group PLC (LON:RPS). Based on 1-year performance, the SRP stock was up by ~16.09 percent, whereas RPS stock was down by ~66.12 percent (as on 28 July 2020 before the market close at 10:20 AM GMT+1). Let’s walk through the financial and operational updates of both stocks.
Serco Group PLC (LON:SRP) – Closed new contracts of approximately £1.8 billion in H1 FY2020
Serco Group PLC is a UK based facility management group and caters to the government and public sector. The Group operates in five segments including Health, Defence, Justice & Immigration, Citizen Services and Transport in the UK & Europe, North America, the Middle East and the Asia Pacific. The Group is included in the FTSE 250.
Trading update as reported on 16 June 2020
In H1 FY2020, the Group expects the revenue to grow by close to 23 percent year on year to approximately £1.8 billion that includes organic growth of 14 percent. The revenue was £1.5 billion in H1 FY2019. The trading profit in H1 FY20 is expected to be in the range of £75 million to £80 million that would be approximately 50 percent when compared to the same period last year. The trading profit is underpinned by the performance of Naval Systems Business Unit (NSBU) of Alion as it contributed 9 percent of the Group revenue. The Group acquired NSBU in North America in August 2019. The financial performance is expected to have a limited impact of the Covid-19 as a slowdown in a few projects was offset by the additional work. The Group extended support to help the operation of the NHS centres, and these contracts are based on an open-book and margins are well below the normal operations. The Group expected the liquidity headroom to be close to £300 million and an adjusted net debt of about £200 million as on 30 June 2020. The Group had the order intake of £1.8 billion, and the bill-to-book ratio is expected to be close to 100 percent. The new contracts include continued operations of the Northern Isles Ferry Services worth £450 million, contract extension of Fiona Stanley Hospital valued at about £370 million and Gatwick Immigration Removal Centre of contract value £200 million.
Performance Guidance of FY2020
(Source: Group Website)
Share Price Performance Analysis
1-Year Chart as on July-28-2020, before the market close (Source: EODHD/Others, Thomson Reuters)
Serco Group PLC’s shares were trading as GBX 163.1 that was up by 0.62 percent from the last closing price (as on 28 July 2020 before the market close at 10:20 AM GMT+1). Stock 52-week High and Low were GBX 169.00 and GBX 97.00, respectively. The Group had a market capitalization of £2.00 billion.
Business Outlook
The Group provided revised guidance for FY2020. The revenue for full-year is expected to be close to £3.7 billion with an organic sales growth to be close to 9 per cent year on year. The underlying trading profit is anticipated to be in the range of £135 million to £150 million. In FY20, the net finance cost is expected to be about £27 million and the free cash flow for the whole year to be over £62 million that would be close to that in FY19. The adjusted net debt is expected to be about £200 million.
RPS Group PLC (LON:RPS) - Expects new contract wins in H2 FY2020
RPS Group PLC is a UK based global professional services group and has operations in about 125 countries. RPS is engaged in the design and management of projects across six sectors including Government Services, Transport, Defence, Property, Energy, Water and Resources. The Group is listed on the FTSE All-Share index.
Q2 FY2020 (ended 30 June 2020) as reported on 21 July 2020
In Q1 FY20, the Group generated fee revenue of £107.0 million, which was down by £131.7 million a year ago. The Group reported revenue declined by 18 percent at constant currency from £130.6 million in Q2 FY19. The government and quasi-government contributed 55 percent of the total fee revenue. The government contracts were very supportive of the Group’s performance. The consulting services in the UK and Ireland were supported by the public sector projects, whereas the private projects were severely impacted. The key worker status was applied to the Group’s water business in the UK. The health and laboratories business in the Netherlands was affected due to the Covid-19. The business performance in Norway was strong. The business activity in North America was affected due to the pandemic; however, coastal and infrastructure projects performed well. Australia Asia Pacific business segment delivered strong growth in Q2 FY20 as 80 percent of the business has exposure to the public sector. As on 30 June 2020, the Group had net borrowing of £57.8 million. The net borrowing was lowered in Q2 FY20 due to the unwinding of the working capital and tax deferral following the government’s support. The Group secured a revolving credit facility of £60.0 million in April 2020. The Group had liquidity headroom of £142.3 million at the end of the reported period.
RPS Group Fee Income breakup for FY2019
(Source: Group Website)
Share Price Performance Analysis
1-Year Chart as on July-28-2020, before the market close (Source: EODHD/Others, Thomson Reuters)
RPS Group PLC’s shares were trading as GBX 47.5 that was up by 1.82 percent from the last closing price (as on 28 July 2020 before the market close at 10:20 AM GMT+1). Stock 52-week High and Low were GBX 185.60 and GBX 29.86, respectively. The Group had a market capitalization of £106.79 million.
Business Outlook
The actions taken by the Group due to the pandemic had a positive impact on the Group’s performance. The expects the government and quasi-government projects support future business performance and provide resistance to the downside risk. The government has large infrastructure development investment plans that would contribute positively to the Group’s business. The Group does not expect to have a steady organic growth in FY20 due to the pandemic and its widespread impact. The Group expects to win new contracts in H2 FY20 as the new AMP cycle starts in the UK and Netherlands.
