Serco’s share price has rocketed 40% in 2025 as the government services contractor benefits from surging defence spending across Europe and North America. The FTSE 250 firm just posted its highest order pipeline in over a decade — £11.9 billion — with defence contracts driving 80% of new business.
Serco’s Defence Contracts Fuel Record Growth in 2025
Government services giant Serco reported stellar first-half results on Thursday, sending shares up 8.3% to 227p in early London trading. The firm’s order pipeline jumped 6% since December, powered by three major UK Ministry of Defence contracts worth over £1 billion combined.
“As defence customers seek expanded, modern, resilient, mission-ready solutions, we’re able to deploy our extensive experience and increasing scale to support them,” Serco said, highlighting “significant opportunity in the sector.”
The numbers backing Serco’s defence boom are impressive. Revenue hit £2.4bn (up 5% year-over-year), while underlying operating profit rose 2% to £146m. Management rewarded shareholders with a fresh £50m share buyback programme and an 8% dividend increase to 1.45p.
Why Defence Contractors Like Serco Are Thriving
NATO’s 2% GDP defence spending commitment is creating a goldmine for military contractors. With geopolitical tensions rising and governments modernising ageing military infrastructure, companies like Serco, BAE Systems, and QinetiQ are seeing unprecedented demand.
Serco’s positioning is particularly strong. Unlike pure-play defence manufacturers, the company provides essential support services — from military base operations to training programmes. These recurring revenue streams offer more stability than one-off equipment sales.
Serco’s European Expansion Strategy Takes Shape
CEO Anthony Kirby isn’t waiting around. In May, Serco completed its $327 million acquisition of Northrop Grumman’s MT&S business, marking a strategic push into European defence markets.
“Our defence business in Europe is pretty small, but we have ambitions to grow,” Kirby told City AM. With European defence budgets set to expand significantly, Serco plans to leverage its UK and US expertise to capture continental contracts.
The maths certainly adds up. Even if NATO members deliver just half their promised spending increases, Kirby sees the defence pipeline “continuing to be significant and growing.” Since 2019, most of Serco’s acquisitions have targeted defence and migration services — a trend that’s accelerating.
Serco Stock Analysis: What Investors Should Know
Key Financial Metrics:
- Market cap: £2.7 billion
- 2025 YTD performance: +40%
- Order book: £11.9 billion (10-year high)
- Defence exposure: 80% of recent orders
- Geographic split: UK, US, and expanding European presence
Investment Thesis:
Serco offers investors exposure to structural defence spending growth without the execution risk of complex weapons programmes. The company’s services model provides:
- Predictable, long-term government contracts
- Defensive earnings during economic uncertainty
- M&A optionality in fragmented markets
- Strong cash generation for shareholder returns
Future Outlook for Serco Shares
Analysts are increasingly bullish on Serco’s prospects. With defence spending locked in through multi-year government budgets and the company’s proven execution track record, revenue visibility extends well into 2025 and beyond.
The acquisition pipeline remains active. Kirby confirmed that future M&A will likely concentrate on defence and migration services, where margins are highest and growth most predictable. This focused strategy should support continued multiple expansion.
For investors seeking defence sector exposure, Serco offers a compelling mix of growth and income. The 40% share price gain in 2024 reflects market recognition of this opportunity — but with an £11.9bn order book and defence budgets still ramping up, there’s arguably more upside ahead.
The bottom line: Serco’s boring business model — providing essential government services — suddenly looks brilliant. As defence spending becomes a permanent fixture of government budgets, contractors like Serco are the picks-and-shovels play on military modernisation.
Frequently Asked Questions
Q1: What is Serco’s current share price and market cap?
A: Serco shares trade at 227p, up 40% year-to-date, giving the company a market capitalisation of approximately £2.7 billion. The stock hit multi-year highs following today’s earnings report.
Q2: How much of Serco’s business comes from defence contracts?
A: Defence contracts represent 80% of Serco’s recent order intake, with three UK Ministry of Defence deals alone worth over £1 billion. The company expects defence to remain its primary growth driver.
Q3: Is Serco a good dividend stock?
A: Serco just raised its interim dividend 8% to 1.45p and announced a £50m share buyback. With strong cash generation from long-term government contracts, the dividend looks sustainable and growing.
Q4: What’s driving Serco’s European expansion?
A: NATO’s 2% GDP defence spending commitment and rising geopolitical tensions are forcing European governments to increase military budgets. Serco’s MT&S acquisition positions it to capture this growing market opportunity.
Q5: How does Serco compare to other UK defence stocks?
A: Unlike manufacturers like BAE Systems, Serco provides services rather than equipment, offering more predictable revenues. Its 40% gain in 2024 outperforms most FTSE defence peers.
DISCLAIMER
Effective Date: 15th July 2025
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