Serco Group confirms loss of UK nuclear warheads contract

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Serco Group PLC (LON:SRP) has confirmed that the contract to manage Britain’s nuclear bombs will be nationalised next year.

The Ministry of Defence informed the outsourcing company that the Atomic Weapons Establishment contract, which has been managed by a consortium that also includes US defence giants Lockheed Martin and Jacobs since the turn of the millennium, will return to state control from June 30, 2021.

The Atomic Weapons Establishment is responsible for the research, design, development, production and ongoing support and maintenance of the UK’s nuclear warheads, based at Aldermaston and Burghfield.

Serco’s 24.5% interest in the AWE Management Ltd consortium is expected to yield a contribution to the group’s underlying trading profit and post-tax profit of around £17mln in the current financial year.

For the next financial year, the FTSE 250-listed group said it expected both profit measures to “remain broadly in line with current consensus and at similar levels to our expectations for 2020”, though it stressed that the budgeting process is yet to be completed and the coronavirus pandemic makes this process harder.

Serco last month upgraded its 2020 profit guidance said it may restart dividend payments after being awarded extensions to its contracts to provide COVID-19 test sites and call handlers for the test and trace system.

The shares tumbled 12% to 113.3p on Monday morning.

Broker Peel Hunt said it was reducing its estimate for the year to December 2021 from £131.8mln to £123.3mln but keeping EPS unchanged at 7.9p as AWE is a JV and therefore the contribution is to EBITA and hence PBT post tax. 

   –Adds shares and broker comment–

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