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Capita has a positive outlook

TIP UPDATE: Capita delivered market beating results for 2010, despite plans for government cuts
February 25, 2011

The UK's largest outsourcer, Capita, delivered market beating numbers for 2010, against a market backdrop of looming government cuts. Despite slower revenue growth in a subdued market, Capita still delivered double-digit profit and earnings growth.

IC TIP: Buy at 700p

The company entered 2011 boasting a record bid pipeline of £4.7bn and in the first seven weeks of the current financial year Capita has won new contracts worth £244m (compared to £795m throughout the whole of 2010). This represents a contract win rate of five from every six, against a normal run-rate of one in two. Chief executive Paul Pindar said: "The leading indicators in the business are much more positive year on year."

Capita is the UK market leader in outsourcing with a 23 per cent market share, which allows the company to bring economies of scale, driven by lower costs from its Indian and the fledgling Polish operations, at a time when both private and public sector companies are looking to cut their own cost bases. And it was primarily the offshore operations in India that drove 109 basis point improvement in Capita's operating margins.

The tone of the outlook statement is positive reflected by another strong rise in the dividend, which is now covered 2.25 times. Broker Peel Hunt expects 2011 underlying pre-tax profits of £401m and EPS of 47.3p (from £364m and 45p in 2010).

CAPITA (CPI)

ORD PRICE:701pMARKET VALUE:£4.3bn
TOUCH:700-702p12-MONTH HIGH:830pLOW: 633p
DIVIDEND YIELD:2.9%PE RATIO:18
NET ASSET VALUE:*81pNET DEBT:191%

Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20061.7419322.39.0
20072.0722927.112.0
20082.4422727.314.4
20092.6925830.816.8
20102.7431038.420.0
% change+2+20+25+19

Ex-div: 13 Apr

Payment: 23 May

* Includes intangible assets of £1.4bn, or 231p a share

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