Next Thursday sees Capita's half year results, what are we in for?
While Capita (LON:CPI) can be fairly pleased with its 2017 performance – it’s risen 19% since January, and hit a 9 month, £7-plus peak in June – in the wider context of the last few years the company has barely taken the tip off its losses. Though it struggled throughout most of 2016, it was that shock, Brexit-inspired profit warning this time last year that really compounded its woes. Capita PLC now sits at a current trading price of £6.32, just over half what it was worth at the start of 2016.
Understandably March’s annual results still carried the stench of a troublesome year. Capita had climbed from a starting price of £5.31 to £5.65 on the eve of the report, only to plunge nearly 12% as the firm revealed a 33% drop in pre-tax profits to £74.8 million and a 19% fall in underlying pre-tax profits to £475.3 million, far worse than even December’s revised forecasts.
Though there were a couple of positives, namely a 1% rise in revenue to £4.9 billion and a broadly unchanged dividend of 31.7p per share, somewhat inevitably the update also came with CEO Andy Parker’s resignation notice. Despite having a lot to process the stock did settle pretty quickly after all this, trading between £5.50 and £5.75 for most of spring.
It wasn’t until mid-June’s AGM trading statement that Capita saw the first real signs of recovery. There the company finally gave investors some good news, claiming it had seen improvements in its struggling IT services and European divisions, secured £318 million in contracts and extensions and was bidding on work worth another £3.8 billion. The real coup was the confirmation of reports that Capita was in talks with British Airway’s to take over the latter’s call centre operations.
Investors’ sigh of relief was enough to spark a 36% increase across the following fortnight, leaving the stock at that aforementioned 9-month high. Since then, however, Capita has lacked momentum, with the most recent knock being the chunky revisions to its 2016 results – for example operating profits fell from £481 million to £355 million – as it implemented the new IFRS 15 accounting rules.
In terms of next week’s interim statement, investors will be eager to see how much of a difference those new accounting rules have made to its half year results, and whether the company’s nascent turnaround continued in the second quarter. They’ll also want an update on the ongoing CEO search, with Parker set to be replaced by Nick Greatorex as placeholder boss on Friday.
Capita PLC has a consensus rating of ‘Hold’ with an average target price of £5.95.
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