U.K. Obamacare Contractor Sales Clouded by Trump Repeal Plan

  • Serco Americas revenue forecast could change ‘materially’
  • Affordable Care Act accounts for a third of U.S. sales

Serco Group Plc shares slumped the most in more than two years after the British outsourcing specialist reported an earnings drop and warned U.S. sales may be hobbled by Donald Trump’s planned repeal of Obamacare.

The U.K.-based provider of government services, from housing for refugees to prison management, draws about a third of its U.S. revenue from testing insurance-seekers for eligibility under the Affordable Care Act. Its forecast that sales in the Americas this year will grow in the “low-to-mid single” digits could “materially change” depending on revisions to the U.S. healthcare plan, Serco said in a statement.

“With the new administration, there may be opportunities and there may be risks,” Chief Executive Officer Rupert Soames said in a phone interview. “The risk is that we are a major provider to the Obamacare system.”

Serco shares fell as much as 19 percent, the biggest drop since November 2014, and were down 14 percent at 127 pence as of 11:24 a.m. in London. That pared the stock’s gain in the past year to 61 percent, valuing the company at 1.4 billion pounds ($1.7 billion).

Trump has pledged to dismantle and replace the health insurance program passed by his predecessor Barack Obama. Before he took office, Trump promised the shake-up would take place on his first day as president, but more recently he’s said that an alternative might not be ready until 2018.

“It would be painful to lose that in its entirety,” Soames said. “I think what will happen is it will take longer than people expect and it’s going to have to be replaced by something. The question is to what extent we can help with that replacement.”

Soames was appointed to lead a restructuring after the company’s reputation was burned by a series of scandals, including revelations that it overcharged on a contract for the electronic tagging of criminals. Serco’s earnings fell 14 percent in 2016, the company said on Wednesday.

After the earnings report, the company’s stock was downgraded by Liberum Capital. Serco’s biggest risk in its home market is a loss-making deal with the U.K. government to provide housing for asylum seekers, London-based Liberum analyst Joe Brent cautioned. Serco’s earnings could be hit if the number of people seeking asylum in the U.K. rises significantly, he said.

Soames said Serco is currently housing as many as 15,500 asylum seekers, or about 500 more than at the time of its previous update in December. Underlying trading profit for the full year fell to 82.1 million pounds, missing the average analyst estimate for 89.2 million pounds, according to data compiled by Bloomberg.

The company’s U.S. unit posted about 200 million pounds in revenue from services tied to the Affordable Care Act, out of a total 691 million pounds in Americas sales last year.

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