Serco Share Price (SRP) Makes New High – Will Psychological Resistance Level Fall?

Serco shares (LON: SRP) were on the rise early in the London trading session, opening at a new high of 201p, before tailing off into the afternoon to stand neutral on the day. The first major test of 200p in a few years has been rejected, yet with sentiment clearly bullish, evidenced by a 28.27% gain YTD, you wouldn't put it past markets looking to retest the level.

Despite this strength in markets, Serco's journey is not without its challenges. Jefferies recently downgraded the stock from “Buy” to “Hold,” citing anticipated profit headwinds that could dampen near-term earnings momentum. The brokerage firm projects a combined profit shortfall of over £55 million for the 2025-2026 period, primarily stemming from challenges in immigration contracts and UK National Insurance changes. This potential shortfall represents a significant portion, roughly 20%, of the company's group profit.

This downgrade comes despite strong trading updates, including back in December, where Serco reported a 9% year-on-year increase in underlying operating profit to £270 million for 2024. The company also raised its free cash flow forecast by £20 million to £170 million. Furthermore, Serco's pipeline of new business opportunities was reported to be at its highest level in over a decade, indicating a healthy outlook for future contract wins.

For 2025, Serco anticipates stable revenue of around £4.8 billion, with an underlying operating profit of £260 million, even with anticipated reductions in immigration contract revenues. This resilience speaks to the diversification of Serco's business and its ability to secure contracts in other sectors, particularly in US defense, where it maintains a strong position.

With H1 results looming in early August, Serco's share price is largely trading on sentiment in the interim. Looking to analysts for clues, the average price target of 213p reflects further upside of almost 10% from the current price action.

The psychological level of 200p may be a battleground area between Serco bulls and bears in the days and weeks ahead, or it may yet fall like many other levels in recent times. The road back to previous heights has been a decade in the making… bulls may just take a moment to enjoy this one.