Business outsourcing and professional services company Capita continues to benefit from organisations seeking to increase operational efficiencies. Fiscal pressure across government is, in particular, focusing attention on public sector finances. The government's recent Operational Efficiency Programme identified £13bn of savings across back office operations, information technology and procurement.
A strong first half saw Capita secure 10 new and renewed major contracts worth £814m (£626m in 2008). The pipeline of bids in which Capita has been short-listed stands at £3bn and, importantly, Capita doesn't need to rebid for any material contracts (those worth more than 1 per cent of turnover) until 2012. The group's life and pensions outsourcing business continues to grow strongly and it now administers 25m policies, representing some 22 per cent of all UK policies.
The scale of Capita's operations helped lift operating margins from 11.9 per cent to 12.2 per cent, and rolling out a common life and pensions administration platform, Elixir, should further increase efficiencies. Free cash flow increased by 20 per cent to £122m, which has been used for acquisitions. Since the start of 2009, Capita has so far bought nine small- and medium-sized businesses for a combined £92.7m. Acquisitions should continue to support a quarter to a third of revenue growth.
Deutsche Bank is forecasting full-year pre-tax profits of £320m and EPS of 37.8p (£277m and 32.9p in 2008), subject to review following these results.
| CAPITA (CPI) | ||||
|---|---|---|---|---|
| ORD PRICE: | 702p | MARKET VALUE: | £4.37bn | |
| TOUCH: | 701-702p | 12-MONTH HIGH: | 774p | LOW: 550p |
| DIVIDEND YIELD: | 2.2% | PE RATIO: | 24 | |
| NET ASSET VALUE: | 68p* | NET DEBT: | 165% | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 1.18 | 115 | 13.9 | 4.8 |
| 2009 | 1.31 | 135 | 16.1 | 5.6 |
| % change | +11 | +17 | +16 | +17 |
Ex-div: 2 Sep Payment: 12 Oct *Includes intangible assets of £992m, or 159p a share | ||||
