Serco looks to raise £550m in new shares

<p>Serco has cut its profit forecast for the rest of the year and 2015.</p>

Outsourcing firm Serco has announced its intention to raise £550 million by selling new shares through a rights issue.

The company has cut its profit forecast both for the end of the year and through 2015. It expects to write off £1.5 billion due to losses on contracts. It is just the latest in a long line of incidents Serco has had to overcome during the past two years. Serco, along with G4S, has been the subject of government bans and potential public sector restriction.

Serco was accused of overcharging the government on its prisoner tagging contract. The company was said to be tagging people that were either dead or still in jail resulting in a six month ban from bidding for any government deals.

Rupert Soames, who took over as Serco chief executive in May, said: "Whilst it is a bitter pill, it is better for all concerned that we swallow it now and establish a really solid foundation on which to build Serco's future."

Earlier in the year, campaigners called for Serco and G4S to be banned from bidding for public sector contractors while they were under investigation for fraud. The prison charity, the Howard League for Penal Reform, wanted a ban imposed on the companies while the Serious Fraud Office continued to subject to an inquiry.

It came after the government had lifted previous its restriction on Serco which prevented it from bidding from its contract. Following this Serco won a new government contract which it started to work on from April.

Following the announcement of the new share scheme, Serco's dropped by 30 per cent to 219.50p in early trading. It has prompted the company to reduce its operating profits for 2014 by £20 million to between £130 million and £140 million.

Find up to date information on spread betting strategies at City Index

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.