Serco Group Plc :SCGPY-US: Earnings Analysis: For the six months ended December 31, 2016 : March 31, 2017

Serco Group Plc reports financial results for the half-year ended December 31, 2016.

We analyze the earnings along side the following peers of Serco Group Plc – MAXIMUS, Inc., Equifax Inc., Verisk Analytics Inc, Automatic Data Processing, Inc., Iron Mountain, Inc., Fiserv, Inc. and Jacobs Engineering Group Inc. (MMS-US, EFX-US, VRSK-US, ADP-US, IRM-US, FISV-US and JEC-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 1,933.27 million, Net Earnings of USD -47.76 million.
  • Gross margins narrowed from 9.64% to 4.86% compared to the same period last year, operating (EBITDA) margins now -0.89% from 3.99%.
  • Year-on-year change in operating cash flow of -122.38% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-12-31 2016-06-30 2015-12-31 2015-06-30 2014-12-31
Relevant Numbers (Semi-Annual)
Revenues 1933.27 2117.01 2113.2 2733.82 3130.46
Revenue Growth (YOY) -8.51 -22.56 -32.5 -19.21 -9.88
Earnings -47.76 77.13 7.46 -139.8 -2166.75
Earnings Growth (YOY) -740.13 155.17 100.34 -1202.53 -12212.34
Net Margin -2.47 3.64 0.35 -5.11 -69.21
EPS -0.05 0.06 -0.09 -0.16 -2.46
Return on Equity -18.58 32.44 3.02 -119.13 -433.74
Return on Assets -4.2 6.08 0.49 -8.21 -101.92

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Market Share Versus Profits

Revenues History
Earnings History

SCGPY-US‘s change in revenue this period compared to the same period last year of -8.51% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that SCGPY-US is holding onto its market share. Also, for comparison purposes, revenues changed by -8.68% and earnings by -161.93% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 9.64% to 4.86%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 3.99% to -0.89% in this time frame. For comparison, gross margins were 11.02% and EBITDA margins were 4.83% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

SCGPY-US‘s change in operating cash flow of -122.38% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Serco Group Plc provides business process outsourcing, consulting and technology services. It provides advisory, design and delivery expertise in the areas of operations strategy, transformation, program delivery, outsourcing, people performance & selection, change management & research. The company operates through the following segments: UK Central Government; UK and Europe Local and Regional Government; Americas; AsPac; Middle East; and Corporate. The UK Central Government segment offers frontline services for sectors including defense, justice and immigration, citizen services and transport delivered predominantly to UK Central Government. The UK and Europe Local and Regional Government segment offers frontline services for sectors including health, local government direct services, transport, and business process outsourcing (BPO) services delivered to UK and European public sector customers. The Americas segment provides professional, technology and management services for sectors including defense, transport and citizen services delivered to U.S. federal and civilian agencies, selected state and municipal governments and the Canadian government. The AsPac segment offers frontline services for sectors including defense, justice and immigration, transport, healthcare and citizen services in the Asia Pacific region including Australia, New Zealand and Hong Kong. The Middle East segment offers frontline services for sectors including defense, transport and healthcare in the Middle East region. The Corporate segment offers BPO services for both public and private sector customers predominantly in the UK, India and North America. The compant was founded in 1929 and is headquartered in Hook, the United Kingdom.

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