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.
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: | 48.69p | MARKET VALUE: | £800m | |
TOUCH: | 48.64-48.74p | 12-MONTH HIGH: | 185p | LOW: 48.69p |
DIVIDEND YIELD: | nil | PE RATIO: | na | |
NET ASSET VALUE: | * | NET DEBT: | £1.35bn |
Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
2015*** | 4.84 | 112 | 5.30 | 21.0 |
2016 | 4.37 | -89.8 | -9.50 | 21.0 |
2017 | 4.23 | -513 | -48.8 | 11.1 |
2018 | 3.92 | 273 | 18.0 | nil |
2019 | 3.68 | -62.6 | -4.18 | nil |
% 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 |