After two profit warnings, we think things could get worse before they get better at support services group Capita (CPI).
IC TIP:
Sell
at
519.5p
Tip style
Sell
Risk rating
High
Timescale
Medium Term
Bull points
- Trading at a discount to historical PE
- Potential private equity buyout target
Bear points
- Weak organic growth
- Rising exceptional costs
- Weak client demand
- Highly leveraged
In September, management warned that referendum-related delays to client decision-making meant that organic revenue growth for 2016 would be around 1 per cent, down from previous guidance of 4 per cent, and underlying pre-tax profit was revised down to between £535m and £555m from £614m. However, in December these expectations were once again chopped back to underlying pre-tax profit of about £515m.