Serco Group Plc (SRP), the U.K. services provider that withdrew from seeking a Ministry of Justice contract on concern about its billing practices, slumped the most in 11 years after saying it misreported data on escorting prisoners for the same department.
The shares plunged 11 percent, the most since July 2002, to 538.5 pence in London, the lowest this year. That was the worst performance today on the Stoxx Europe 600 Index and the decline cut about 340 million pounds ($527 million) from Serco’s market value. The volume of shares traded was more than seven times the three-month daily average.
Data on the Prisoner Escorting and Custodial Services contract was misreported and performance overstated, the Hook, England-based company said in a statement today. Serco agreed to repay any profit, estimated to be about 2 million pounds, earned since the seven-year 285 million-pound contract was renewed in 2011 and forego future profit.
“The risk is the impact on Serco’s broader relationship with government and the potential impact of greater transparency on margins,” Joe Brent, an analyst at Liberum Capital Ltd. who put his buy rating under review, said in a note to clients. The financial effect of the contract expenses will probably be “minimal,” he said.
Serco agreed to a three-month program with the ministry to restore performance and will keep the contract if its meets performance requirements. There was no evidence that managers outside the contract knew of the misreporting, the company said.
“I am deeply saddened and appalled at the misreporting of data by a small number of employees on the contract,” Serco Chief Executive Officer Chris Hyman said in the statement. “We will not tolerate any wrongdoing and that is why we have referred this matter to the police.”
Serco agreed to “initiate a program of change and corporate renewal” and to have the government exercise independent oversight of the plan, it said. In July, Serco withdrew from seeking a contract for electronic monitoring of prisoners amid a government investigation.
Serco also announced first-half results today and left its overall full-year guidance unchanged. That implies a “material climb down” in growth in the second half after a better-than-expected 8.8 percent organic revenue gain in the first half, Investec Securities analyst Gideon Adler said in a note to clients.
“In the short term it faces the triple threat of a subdued revenue outlook, particularly in its U.K. public sector pipeline, margin headwinds and contracting free cash flow,” said Adler, who maintained a sell recommendation.
Serco jumped to its highest price since at least 1991 on July 8 after winning a U.S. Medicare and Medicaid support contract worth as much as $1.25 billion.
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