Search Share Prices
Capita's looks a 'resilient' turnaround to Citi
Capita was given a lift on Thursday as Citi upgraded the outsourcer's shares to 'buy' for the first time in more than five years.
"With earnings rebasement, a rebuilt balance sheet and another £105m costs savings targeted post 2018, Capita should have reached its nadir," analyst said, noting a repaired balance sheet and the shares trading at discount to the expected earnings of the rest of the business services sector.
"While industry momentum remains soft, Capita has a reasonably solid revenue base into which new management can reconfigure the business."
Citi's full year PBT forecast of £280m is only at the middle of management guidance, which it said could be conserve.
After carrying out "detailed benchmarking" against outsourcing peers in Capita's various revenue end-market exposures, this suggests to analysts that management's double-digit 2020 EBITA margin target "should be achievable", with the more worrying UK central and local government segments perhaps only representing 10-15% of profits.
With the rights issue completed and a seemingly "straightforward" disposal process for ParkingEye and Constructionline, debt should reach just 1.3 times EBITDA by the end of 2018, or 2.1x including the pension deficit.
Finally, bolstering the 160p target price, Capita is seen to have only a few large contracts up for rebid through 2020, "suggesting a resilient revenue base during the turnaround phase".