These three stocks have released updates today. Is now the right time to buy them?
Serco
Shares in support services company Serco (LSE: SRP) have risen by 15% today after it recorded better than expected performance in the first half. Its operating profit increased from £37m in H1 2015 to £65m in the same period of 2016 as factors such as the favourable resolution of commercial issues and certain contracts running longer than expected had a positive impact on its performance.
Although many of these factors aren’t expected to recur, Serco continues to make good progress with its turnaround strategy. It has removed £550m from its operating costs and has invested heavily in its infrastructure, processes and purchasing systems. Together, they’re having a significant impact on its financial performance and Serco has today upgraded its full-year guidance, which is a key reason for its share price gain.
However, Serco is still expected to report a fall in its bottom line of 45% this year, followed by a further decline of 22% next year. With its shares trading on a forward price-to-earnings (P/E) ratio of 57, it seems to be overvalued and worth avoiding at the present time.
London Stock Exchange Group
London Stock Exchange Group (LSE: LSE) also reported today, recording growth across all of its core business areas in the first half. It delivered particularly impressive growth in its information services segment, which contributed to a 9% rise in sales and an increase in adjusted operating profit of 9%.
Encouragingly, LSE’s operating expenses remained well controlled at a time when the company is investing in growth opportunities. Furthermore, its balance sheet remains strong and it has been able to reduce leverage to 1.3 times net debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation).
Looking ahead, LSE’s merger with Deutsche Börse is set to go ahead as planned. With LSE forecast to record a rise in its earnings of 14% in each of the next two years, its outlook remains positive. And with its shares trading on a price-to-earnings growth (PEG) ratio of 1.4, it offers good value for money.
UDG Healthcare
Meanwhile, UDG Healthcare (LSE: UDG) also released an update today. Its third quarter saw sales and profits rise versus the same period of the previous year, with UDG reiterating its full year guidance of a 6% to 8% rise in diluted earnings per share (EPS) on a constant currency basis.
On the topic of currency, UDG has decided to change its reporting currency from euros to US dollars. This is because of the changing geographic profile of the business, with the vast majority of its profits now being generated in dollars. Furthermore, UDG’s US-based businesses are demonstrating the greatest growth opportunities and future corporate development activity is likely to be US-focused. As such, reporting in dollars seems to make sense.
With UDG trading on a P/E ratio of 25.2, its shares appear to be rather overvalued. Although it’s set to increase its earnings by 10% next year, it’s still difficult to justify purchase at its current price level.
