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Capita profits still falling

A wide range of issues are weighing on progress for the outsourcer
March 15, 2019

Annual adjusted profits at Capita (CPI) beat both management's and market expectations, but they still fell by more than a quarter to £282m. Ahead of management’s £250m-£275m guidance range, perhaps, but the share price volatility on results days suggests investors struggled to fully digest these numbers.

IC TIP: Sell at 120p

The outsourcer has done a commendable job of clawing back costs – £70m last year, with a target of £175m by the end of this year – and at reducing debt – a £701m rights issue and £408m in proceeds from disposals saw net borrowings drop from £1.12bn in 2017 to £466m in 2018. The bigger problem, it seems, is its ability to win new work.

Revenues fell last year following a host of issues, including the fact that new contract wins were "outweighed” by contract losses. Meanwhile, scope and volume changes across the government services customer management and specialist services divisions, customer contract changes, and a decline in margins at the people solutions business all held back progress. Hardly surprising, then, that free cash flow registered a £261m outflow in 2018, compared with a £66.6m inflow in the previous year. 

Broker Peel Hunt is forecasting adjusted EPS of 13.1p in 2019, down from 16.4p in 2018.

CAPITA (CPI)    
ORD PRICE:120pMARKET VALUE:£2.00bn
TOUCH:119.9-120.1p12-MONTH HIGH:174pLOW: 78p
DIVIDEND YIELD:NILPE RATIO:7
NET ASSET VALUE:2p*NET DEBT:£466m
Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2014**4.3829223.719.4
2015**4.841125.3021.0
2016**4.37-89.8-9.521.0
20174.23-513-48.811.1
20183.9227318.0nil
% change-7--#VALUE!
Ex-div:na   
Payment:na   
*Includes intangible assets of £1.59bn, or 95p a share  **Historical figures restated to account for a 3-for-2 rights issue completed in May 2018