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Mass migrations result from such human miseries as wars, persecutions and economic deprivation. They are set to deliver an awkward dividend to outsourcing businesses that help governments handle spiralling migrant numbers.
There were two signs of the times on Thursday. Contractor Serco increased full-year profits guidance on “robust demand for immigration services”. Hours later, an appeal court ruled as unlawful a hare-brained UK government scheme to deport asylum seekers to Rwanda.
Net migration to the UK rose to a record high of 606,000 last year. Governments across Europe are struggling to contain numbers.
The Ukraine war is one immediate cause. Climate change will intensify displacement longer term. An annual average of more than 20mn people globally have been internally displaced since 2008 by “extreme” weather-related events such as storms and floods, according to the Intergovernmental Panel on Climate Change.
UNHCR, the UN’s refugee agency, says the link between climate change and displacement is clear and growing. Forecasts of the resulting migrant population vary widely from 200mn to 1bn people by 2050.
London-listed Serco has a long record of running immigration services, which involve keeping people out as well as letting them in. It works for the sought-after destinations of the UK and Australia. Last year it entered the continental market via the £39mn acquisition of Swiss group ORS which also operates in Germany, Austria and Italy.
Better than expected trading at ORS was one reason for a profits upgrade in Serco’s full-year guidance. High demand for immigration services in the UK was another.
Serco expects group revenues to be “at least” £4.8bn this year versus £4.5bn in 2022 and prior guidance of £4.6bn. It forecasts underlying profit of £245mn, up from £237mn a year ago. Leverage should fall to 0.7 times net debt to ebitda, according to Liberum. This would allow wriggle room for more small deals.
Serco shares rose 10 per cent on the upgrade. They trade at a forward price/earnings ratio of 10.8 times, well below pre-pandemic levels. The stock is a cheap way to get exposure to growing demand for contract services in immigration and defence. Risks include scandals around the treatment of migrants that can destabilise businesses.
War and refugees. Sadly for humanity, spending on capacity in both areas is only going in one direction.
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