Search Share Prices
Capita gains on RBC upgrade to 'outperform'
Capita was on the front foot on Friday as RBC Capital Markets upped the stock to 'outperform' from 'sector perform' and lifted the price target on the outsourcer to 200p from 185p.
"On balance, with financial leverage concerns now addressed, a credible turnaround plan introduced and the risk of negative news flow low, the shares should outperform in the near term," it said.
RBC said that while this won't be a straight line recovery, if it can prove it has a core offering and deliver sustainable growth, then 9.6x estimate 2020 price-to-earnings looks a compelling starting point for a re-rating.
It said that the lack of growth in Capita's end markets and the need to change the culture of the business means that from an equity standpoint patience will be required.
"However, there looks to be some easy wins on the cost base and we would note that that there is no payback attached to the £500m of investment going into the group over the next three years - which should at least provide an underpin to forecasts.
"Near term news flow is likely to be positive and alongside a valuation which is not prohibitive, we believe this could be the time to take a view on the new strategy."
On the downside, RBC noted that organic growth has been negative of late and said it still reckons the economic and political environment in the UK means growth will become a stretch.
At 0930 BST, the shares were up 2.5% to 153.75p.