In any other context, Capita's (CPI) half-year results would be classed as solid. For example, underlying operating profits were up 6 per cent to £227m and the company won a record £2bn of contracts during the half. However, profit margins came under noticeable pressure and fell 80 basis points to 12.5 per cent compared with this time last year. All of which has led to worries that the company is taking on contracts that are costing more than anticipated to implement, while boosting revenues at the expense of profits.
Analysts latched on to the operating profit margin outlook for this year, which was effectively downgraded to 12.5-13.5 per cent "for the foreseeable future". To put that into context, last year Capita achieved an operating margin of 13.9 per cent. The reduction in profitability is due to the cost of implementing some of the largest contracts in Capita's history and integrating the £198m of acquisitions the company made in 2012. This has affected other performance measures, for example, over the past 12 months the average return on capital employed dropped a full percentage point to 15.1 per cent. On the positive side, Capita's bid pipeline stands at £4.2bn, of which 97 per cent is potential new business.
Investec forecasts current-year pre-tax profits of £459m and EPS of 55.4p (from £417m and 52.1p in 2012).
CAPITA (CPI) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,009p | MARKET VALUE: | £6.64bn | |
| TOUCH: | 1,008-1,010p | 12-MONTH HIGH: | 1,060p | LOW: 677p |
| DIVIDEND YIELD: | 2.4% | PE RATIO: | 26 | |
| NET ASSET VALUE: | 142p* | NET DEBT: | 129% | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 1.60 | 139 | 18.1 | 7.90 |
| 2013 | 1.81 | 157 | 20.0 | 8.70 |
| % change | +13 | +13 | +10 | +10 |
Ex-div: 21 Aug Payment: 7 Oct *Includes intangible assets of £2.18bn, or 332p a share | ||||
