Serco shares slip on profit warning

Scandal-tainted Serco shares suffered a deep plunge on Tuesday after the outsourcing giant issued a profit warning and announced plans for a rights issue.

The company on Monday warned that it could downgrade its profit forecasts for the current year due to challenging business conditions. The FTSE-250 firm also announced that might have to issue new shares to strengthen its financial condition and perk up balance sheet.

Issuing the warning, it said, "It has now become evident . we may need to reassess the level of risk implicit in the assumptions underlying our forecasts. We will be consulting with shareholders regarding the possibility of strengthening the balance sheet through an equity placing."

While Serco didn't provide details of the potential downgrade, analysts at Liberum and Investec predicted that shareholders would likely see a 20 per cent downgrade to profits. The analysts also predicted that the outsourcer might need to tap investors for up to 500 million pounds.

Stock market could not react to the statement on Monday as it was issued in the evening after the close of market. On Monday morning, Serco shares shed almost 20 per cent and closed at a loss of 15 per cent to around 343p apiece.

It was the second profit warning by the outsourcer this year and the third since November 2013. In January, the company warned that its profits in 2014 would be lower than that of the previous year due to the blend of higher costs and underperforming contracts.

Last year, Serco was rocked by a scandal in which it the government found it overcharging the taxpayer for a contract to tag criminals. The revelation triggered a ban on new contracts by the government and led to the exit of its long-serving CEO Chris Hyman.

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