Outsourcer Capita (CPI) saw its adjusted pre-tax profit plunge by almost three-quarters, year on year, in the six months to 30 June, to £30m. Earnings were weighed down by local government contract losses last year and the impact of Covid-19 on its transactional businesses such as ‘people solutions’. There was also a £43m hit from staff choosing not to take up their holiday days during lockdown.
Under the turnaround plan launched in 2018, this was meant to be a “pivotal year” in which Capita reversed three years of revenue decline and returned to growth. But the pandemic has delayed those ambitions and the group now doesn’t expect to generate ‘sustainable’ free cash flow for up to two years.
In response to the crisis, the sale of the Education Software Solutions business – which could fetch up to £700m – is being brought forward and the proceeds will be used to reduce pension liabilities and bolster the balance sheet. Further disposals are also planned. Net debt has come down by almost a fifth since the 2019 year-end position to £1.1bn. But it is expected to creep back up again as benefits such a £117m VAT deferral reverse in the second half.
The group is guiding that the pandemic hit will continue into the second half of the year and it will also be squeezed by further contract losses. Based on expectations of a slow economic recovery, it believes revenue for the back end of the year will be flat or slightly down from the first half.
Peel Hunt forecasts adjusted pre-tax profit of £115m for the full year, increasing to £167m in 2021.
| CAPITA (CPI) | ||||
| ORD PRICE: | 32.6p | MARKET VALUE: | £552m | |
| TOUCH: | 32.3-32.6p | 12-MONTH HIGH: | 185p | LOW: 20p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | * | NET DEBT: | £1.1bn | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2019 | 1.85 | 31.2 | 1.36 | nil |
| 2020 | 1.68 | -28.5 | 0.38 | nil |
| % change | -9 | - | -72 | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *Negative shareholders' equity | ||||
