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Why Shares Of Serco Group Plc Dropped

Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.

What: Shares in Serco (LSE: SRP) fell by 10% this morning, following the international service company’s interim management statement.

So what: Management issued a profit warning for 2013, with adjusted operating margin expected to be “slightly down” on the 6.4% growth seen in 2012. They believe this will have a knock-on effect to 2014’s profits, too.

Now what: This is primarily down to the restriction placed on Serco that means it is unable to bid for UK government contracts while it’s being investigated over claims that, along with G4S, it charged the taxpayer to electronically tag people who were not being monitored, whether in prison or out of the country — or, worryingly, a small number who were deceased.

In light of these allegations, made back in July, Serco agreed to withdraw from bidding for the next generation of ‘tagging’ contract, worth a lucrative £1bn. Management was unable to give a timescale as to when the investigation may reveal its findings, which means it continues to hang over the company — and its share price.

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> Sam does not own shares in any of the companies mentioned.