Serco share price surges as CEO steps down

The chief executive of Serco (LON:SRP) has left the company as part of a major reorganisation aimed at rebuilding the outsourcer’s reputation with its biggest customer – the UK government. Following the announcement on Friday the company’s share price rose by more than one percent to 573.00p.

CEO Chris Hyman will be temporarily replaced by Ed Casey, who has run Serco’s Americas division since 2005.

Hyman will receive a pay-off of ₤2.5 million, his annual basic salary, plus benefits worth ₤1.1 million. He also departs with a pension pot worth £2.2m, paying out £128,000 a year, and 917,000 shares in Serco, worth £5.1m.

Along with Hyman’s departure, Serco announced it would divide its British and European business in two, with one part focusing on central government work and the other on activities across the public sector. “This is a positive move by Serco and a step forward,” the Cabinet Office said.

Serco, which runs the Docklands Light Railways, the Boris Bikes scheme and the Atomic Weapons Establishment, earlier this year was accused by the government of overcharging taxpayers to monitor the electronic tags of offenders who were dead, non-existent or in custody.

In August, the company’s problems increased when the justice ministry asked police to investigate alleged fraudulent behaviour by some Serco staff working on a prisoner escorting contract.

Serco has agreed to repay all past profits on the prisoner escorting contract and forgo any future profits and will replay any amount due on the electronic tagging contract.

Former Balfour Beatty chief most likely to succeed Hyman as CEO

Ian Tyler, the former chief executive of construction group Balfour Beatty, is believed to be one of the leading candidates to replace Hyman. Andy Parker, the second in command at Capita, a rival outsourcing supplier, is also on the list of candidates approached by Serco.

Alastair Lyons, chairman of Serco, is understood to have begun planning for the possibility of Hyman’s departure over the summer and has hired headhunters to find an external replacement.

Said Cantor analyst Sam Thomas.

Analysts on Serco

Serco had its ‘hold’ rating reaffirmed by analysts at Shore Capital Stockbrokers in a research report issued to clients and investors on Thursday.

Three analysts have rated Serco’s stock with a ‘sell’ rating, 13 have issued a ‘hold’ rating and six have given a ‘buy’ rating to the shares. Serco has a consensus rating of ‘hold’ and an average target price of 611.78p.

As of Friday, 25.10, buy Serco shares at 678.00p.
As of Friday, 25.10, sell Serco shares at 505.00p.