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Capita nosedives on turnaround setback

The outsourcer says that its transformation is taking longer and costing more than originally planned
March 6, 2020

Investors were left unimpressed after Capita (CPI) revealed that its turnaround efforts have been “slower and more expensive than we had hoped”. While the outsourcer had originally anticipated investing £720m in its transformation across three years, it now believes the total will be closer to £800m. The shares crashed almost 40 per cent on the day and have now hit their lowest level in over two decades.

IC TIP: Sell at 78p

The group slid to a statutory pre-tax loss in 2019, and even on an adjusted basis profit dipped 2 per cent to £275m. With £105m of costs cut during the year, it has delivered its target of producing £175m of cumulative savings over two years. But there’s no longer any mention of achieving a double-digit adjusted operating profit margin in 2020. We were already sceptical of the group’s ambition to produce at least £200m of adjusted free cash flow next year and this has now been downgraded to £160m. There was a £61.3m outflow in 2019.

Net debt (excluding £563m in lease liabilities) soared by more than two-thirds to £791m, equivalent to 2 times adjusted cash profits and at the top end of the group’s target leverage range.

Numis forecasts an adjusted pre-tax profit of £252m and EPS of 11.5p in 2020, down from £275m and 13.1p in 2019.

CAPITA (CPI)    
ORD PRICE:48.69pMARKET VALUE:£800m
TOUCH:48.64-48.74p12-MONTH HIGH:185pLOW: 48.69p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:*NET DEBT:£1.35bn
Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2015***4.841125.3021.0
20164.37-89.8-9.5021.0
20174.23-513-48.811.1
20183.9227318.0nil
20193.68-62.6-4.18nil
% change-6---
Ex-div:na   
Payment:na   
*Negative shareholders' equity
**Includes lease liabilities of £563m   
***Historical figures restated to account for a three-for-two rights issue completed in May 2018