ii view: defence focus underpins Serco's new share buyback
Helping governments both here and overseas reduce spending and reduce debt. Buy, sell or hold?
6th March 2026 11:41
by Keith Bowman from interactive investor
Full-year results to 31 December
- Currency adjusted revenues up 3% to £4.9 billion
- Currency adjusted underlying operating profit up 1% to £272 million
- Final dividend of 3.05p
- Total 2025 dividend up 8% to 4.5p per share
2026 Guidance:
- Continues to expect annual revenue of around £5 billion in 2026
- Continues to expect annual adjusted operating profit of around £300 million in 2026
- Deploying new £75 million share buyback programme
Chief executive Anthony Kirby said:
"With a focus on sustainable growth, competitiveness and operational excellence we have delivered another year of good outcomes.
"We expect elevated geopolitical tension and policy complexity to remain a feature of the market in the near term, although the structural drivers of demand will continue to intensify. Pressures are increasing on governments to do more and better for less - we stand ready to support them in doing just that.”
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ii round-up:
Continuing strong demand for defence services gave Serco Group (LSE:SRP) the confidence to announce a new £75 million share buyback, with the outsourcer’s contract pipeline of £12.1 billion its highest in a decade.
A 3% increase in adjusted revenues to £4.9 billion in 2025 aided a 1% increase in currency adjusted operating profit to £272 million. With around two-thirds of awards in defence drove, Serco’s order book rose by a tenth to £14.5 billion, with management continuing to expect a rise in adjusted operating profits to £300 million this year.
Shares in the FTSE 250 company rose modestly in post results trading having come into these latest numbers up 85% in 2025. That’s similar to fellow outsourcer Capita (LSE:CPI). The FTSE 250 index rose 9% last year.
Serco provides services to government departments including defence, space, immigration, justice, healthcare, and customer services in both the UK and overseas.
Contract developments during 2025 included enhancements for recruit hiring across all three UK military services, a prisoner transport contract in Victoria, Australia, as well as an extension of its London Cycle Hire work for London Transport.
A final dividend of 3.05p per share, and payable to eligible shareholders on 8 May, takes the total 2025 payment up 8% to 4.5p per share. A management review of the shareholder returns policy is scheduled for the interim results in August when the new £75 million share buyback is due to complete.
Serco’s AGM on 22 April is followed by a first-half trading update on 25 June.
ii view:
Employing around 50,000 people, Serco helps governments design services, integrate systems, outsource case management and engineering services, and oversee assets and facilities. The UK and Europe generated 53% of revenue in 2025. That was followed by North America at 30%, Asia Pacific 13%, and the Middle East the balance of 4%.
For investors, increasing revenues related to defence activities may deter some investors on ethical grounds. A forecast price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap. Reputational and executional risk in running services such as immigration detention centres should not be forgotten, while changes of government can bring new priorities and contracts.
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More favourably, a pipeline of potential business at a new decade high points to robust demand.
Financially stretched national finances following the pandemic mean many governments are keen to reduce spending and lower debt. A diversity of customer sector and geographical region exists, while share buybacks of £465 million since 2021 and a forecast dividend yield of around 1.5% are not to be ignored.
On balance, and while risks remain, varying government initiatives globally aimed at reducing national debt should continue to prove supportive for this major UK and overseas outsourcer.
Positives:
- Diversity of both services offered and geographical location
- New share buyback programme
Negatives:
- Share buybacks of £465 million since 2021
- Currency movements can drag on performance
The average rating of stock market analysts:
Buy
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