US broker Jefferies recently sent some representatives along for a chat with the UK government's chief procurement officer to get a line on Serco (LON:SRP).
The outsourcing firm has been in the doghouse ever since an independent audit of an electronic monitoring contract originally let in 2005 uncovered what Serco called “matters of potential concern in relation to billing practices”.
As a result of the investigation Serco withdrew from the re-tendering process for the electronic monitoring service, and there were concerns in the market that the apparent transgressions would put Serco at a disadvantage in future tenders for government business.
The Jefferies team, however, thinks the chief procurement officer will be prepared to forgive, if not forget.
“We sense a more conciliatory tone regarding discussions with Serco which supports our view that the relationship will not be severed. Moreover, cost pressures from enhanced internal monitoring and compliance may not be as high as we originally feared. However, uncertainty may linger until three reports are published in late November/December,” the broker said.
Jefferies has a 'buy' rating and 675p price target for Serco. Shares currently trade at around 568p.