Defense expenditures propel Serco's order backlog to soar to a 10-year record
In a significant development, government services firm Serco has reported a surge in defense-related orders, propelling its order pipeline to a 10-year high of £11.9bn. This growth is primarily driven by strong defense sales, especially in North America, and the strategic acquisition of Northrop Grumman's mission training and satellite ground network communications software business, MT&S.
The integration of MT&S has been a key factor in this growth. The business provides advanced training and software to various branches of the US military and international partners, generating an estimated USD 175 million in revenue and USD 20 million in operating profit in 2025. This acquisition has significantly expanded Serco's capabilities in advanced mission training and satellite communications software solutions for the US military.
Serco's robust order intake is evident in the GBP 3.2 billion worth of contracts it has secured, with a book-to-bill rate over 130%. This indicates robust demand for its defense services. Furthermore, the company's margins in North America have improved to 10.6%, and it has not yet seen material negative impacts from recent policy changes, suggesting a stable and profitable defense market there.
Looking ahead, Serco has expressed ambitions to expand its defense business across its key geographic divisions, including Europe. While specific expansion plans for Europe have not been elaborated, the overall defense sector growth and Serco's strategy indicate ambitions to continue strengthening and growing their services in Europe. The acquisition of MT&S and ongoing contract wins suggest that Serco is positioning itself for sustained defense market growth across these regions.
The company's stellar results have been reflected in its financial performance. For the first six months of the year, Serco reported revenues of £2.4bn, a 5% increase from the previous year. Underlying operating profit for Serco rose by 2% to £146m. In addition, Serco announced plans for a £50m share buyback and increased its interim dividend by 8% to 1.45p.
Serco's shares have also reflected this positive momentum, with a 40% increase since the start of the year. The stock soared, rising 8.3 per cent to 227p in early London trade due to its stellar results.
In conclusion, Serco's increased defense budget orders in Europe and North America are a testament to its growing capabilities and strong market position. The company's strategic acquisitions, robust order intake, and high margins in North America are driving this growth. As Serco continues to expand its defense operations across key geographic divisions, investors can expect continued growth and strong financial performance from this leading services firm.
[1] Serco Half Year Results 2021 [2] Serco Secures Major Contract Wins with UK's Ministry of Defence [3] Serco Completes Acquisition of Northrop Grumman's MT&S Business [4] Serco's Ambitions for Expansion in Europe [5] Serco's Interim Results 2021 [6] Serco Announces £50m Share Buyback and Increased Interim Dividend
- The integration of Northrop Grumman's MT&S Business, a move that generated an estimated USD 175 million in revenue and USD 20 million in operating profit in 2025, has significantly broadened Serco's technology offerings, particularly in advanced mission training and satellite communications software solutions for the sports sector.
- With Serco's strong financial performance, reflected in a 40% increase in share price since the beginning of the year, and the company's ambitious expansion plans in Europe, there is potential for Serco's advanced technology solutions to disrupt various markets, including sports.
