Shares in Serco are down 5% in morning trading after the outsourcing company cut its FY 2018 revenue guidance by 6%, from £2.8-2.9b to £2.7-2.8b in the latest trading update. Note, however, that Serco maintained its FY profits guidance at £80m, which suggests higher profits margins for the company on the back of transformational cost savings.

Hence we wonder if the share price movement might be an overreaction to the damning headline that screams “revenue warning”, while the actual result could have a positive spin in the long run in terms of better profitability.

Serco is blaming the reduction of projected revenue on currency headwinds from contracts that concluded in 2017, and that could be construed as an “it’s not us, it’s the environment” excuse. After all, FX fluctuations is not something Serco can control and they may yet return in the future. And investors should be wary of potential for the projects pipeline to shrivel as the UK government is reassessing its contract outsourcing practices in the wake of Carillion’s collapse.

And yet, given all of that, it is heartening to see a company working proactively on controlling costs and protecting hard-won profits for shareholders.

Artjom Hatsaturjants, Research Analyst, 29 June 2018