ii view: Capita transformation proves encouraging
Support services company Capita remains on track to hit set targets.
1st August 2019 10:24
by Keith Bowman from interactive investor
Share on
Support services company Capita remains on track to hit set targets.
Half-year results
- Adjusted revenue down 6.3% to £1.85 billion
- Adjusted pre-tax profit down 3.6% to £126.1 million
- Earnings Per Share (EPS) down 42.7% to 5.86p
- 2019 full-year guidance maintained
- 2020 targets reiterated
Chief executive Jon Lewis said:
“Capita is now in the second year of a multi-year transformation and we remain on track to hit the targets we set in 2018. Having addressed the balance sheet and made disposals last year, we have continued to strengthen the business in 2019. We are beginning to see the benefits from: strengthening our functions; changing the culture and enhancing governance; improving relationships with our clients; recruiting significant talent to key roles; and investing in people and new client propositions.”
ii round-up:
Capita (LSE:CPI) is a major provider of business services, largely within the UK. It operates across the business segments of Software, People Solutions, Customer Management, Government operations, IT and Network Services and Specialist services.
Employing over 60,000 people, its customers come from Banking and Insurance to Retail, Utilities and government Health and Police services.
The company reported encouraging progress in these half-year results, surpassing low prior expectations. Further progress has been made in improving the performance of contracts, while investment in systems and digital capability was ongoing. Full year guidance was reaffirmed.
The share price rose by over 20% in midday UK stock market trading.
ii view:
Capita is in the second year of a multi-year transformation. A simplified and strengthened company is the aim. A bolstering of its balance sheet has been undertaken via a £1.1 billion fund raising and business disposal programme. Cost saving initiatives are being implemented, while challenging contracts are being reviewed.
From an investment prospective, the company is not without risk, but today’s half year results suggest management is making encouraging progress. The shares currently offer no dividend payment, but the forward price earnings ratio currently sits at a discount to both its three and ten-year averages.
Positives:
- Balance sheet has been strengthened
- Accelerating cost cuts
- Aim is to evolve into a digitally-enabled services, software and consulting business
Negatives:
- Become overly complex and inefficient
- Challenged by execution issues on several major contracts
- 2018 order book fell compared to 2017
The average rating of stock market analysts:
Strong hold
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.