Capita’s shares (CPI) fell by more than a tenth on Thursday, after the outsourcing group reported a double-digit decline in pre-tax profits (see table), and forecast that underlying pre-tax profits would rise only modestly in the second half. This follows a sharp drop in the share price earlier in the month, when the company flagged the impact of the newly adopted IFRS 15 accounting standards on its full-year results: revenue and profits are now recognised later. Adjusting to take these rules into account, Capita now has negative shareholder funds.
Underlying pre-tax profits rose by 46 per cent to £195m, driven by better performance from the IT services division and some profitable contracts. Cost-cutting should bring benefits of £57m by the end of 2018, although the impact will be lower than expected this year.
The group disposed of its asset services business for £888m and completed the sale of its specialist recruitment business. Discussions ended with the Ministry of Defence, which means the Defence Infrastructure Organisation contract will come to an end in 2019. Meanwhile, work with NHS Primary Care Support England continued, but significant costs will be incurred throughout 2017.
Analysts at Peel Hunt revised down their expectations for the 12 months to December 2017, with pre-tax profits down 5 per cent to £401.9m, giving EPS of 47p. This still marks an improvement on the £268.5m and 31.7p seen in 2016.
| CAPITA (CPI) | ||||
| ORD PRICE: | 572p | MARKET VALUE: | £3.81bn | |
| TOUCH: | 571-572p | 12-MONTH HIGH: | 992p | LOW: 431p |
| DIVIDEND YIELD: | 5.5% | PE RATIO: | na | |
| NET ASSET VALUE: | * | NET DEBT: | £1.60bn | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2016 | 2.16 | 37.2 | 4.66 | 11.1 |
| 2017 | 2.13 | 27.6 | -0.11 | 11.1 |
| % change | -1 | -26 | -102 | - |
| Ex-div: | 19 Oct | |||
| Payment: | 30 Nov | |||
| *Negative shareholders' funds | ||||
