STOCKS NEWS EUROPE-Serco higher after in-line update

Shares in Serco Group (SRP.L) take on 2.3 percent following an in-line trading update from the support services firm which prompts Merrill Lynch to repeat its "buy" rating.

Serco says, in a pre-close trading update, that it remains on track to meet expectations for 2009 thanks to a sustained high-level of activity in the first-half.

Serco also says it had won a five-year contract with the Australian government, worth 180 million pounds, to manage and operate seven adult immigration detention centres.

Merrill Lynch, in a note, says it believes that the group already has visibility for 2009 sales of more than consensus and it thinks that the consensus EPS forecast is too low at 26.7 pence, with the broker's estimate at 28 pence.

The broker notes that Serco's shares trade on 15 times 2009 and 12 times 2010 estimates, while peer Capita (CPI.L) trades on 18 times for 2009 and 16 times for 2010.

Merrill Lynch says while Capita is higher quality, Serco is more attractive on valuation versus growth and has better momentum.

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