Fri, 2nd Feb 2018
Shares in Capita have fallen to a 20-year low, as fears mount surrounding the company’s turnaround. Meanwhile, shares in Vodafone and Shell also slipped, as the FTSE 100 overall fell by 0.6 percent.
The scale of the issues that Capita is facing are becoming apparent. The company issued a profit warning, and investors are questioning whether the standby underwriting will be enough to de-risk the business and allow it to secure some contract renewals.
Panmure Gordon estimates that Capita has almost £500 million in UK government deals that will expire this year, and that mangement’s guidance that revenue will be flat next year requires that many, if not all, of those contracts renew.
Panmure argued that over the last decade Capita has under-invested in business growth to the tune of £250 million. Management are unable to provide clear guidance on the level of underinvestment that needs to be remedied, and this means that shares are stuck on a depressed valuation. The company’s turnaround plan could take up to four years to execute.
Capita’s profit warning has hit many of its rivals, raising questions about the health of Mitie, Serco and Interserve, who were already under the microscope - just like Capita, because of the previous collapse of Carillion. Officials are emphasizing that Capita is in a vastly different position to Carillion, however officials were meeting with senior Capita executives to discuss the health of the company following the relatively poor report and profit warnings.