Outsourcing firm facing further headwinds in weakening markets say Panmure
Companies: Capita plc
Outsourcing firm Capita Plc has warned that it expects near-term headwinds to hit profits in the current financial year and confirmed that it will sell a number of its businesses to help it become simpler, with a clear strategy and focus on organic growth.
Capita said it now expected underlying PBT to be around £515m, not including restructuring costs, significantly lower than its previous forecast of between £535m and £555m.
The FTSE 100 firm said it would sell the majority of its asset services division and several other businesses that no longer fit with its business strategy. The division being sold contributed c.£70m in EBITDA and £60m to operating profit.
Broker Panmure said Capita's update didn't change its forecast, which has been sell for some time.
"They guide to flat profits (2017 over 2016) but we had been modelling a decline (consensus was for growth) and we maintain our decline post today’s update."
Commenting on the asset sales, Panmure said CPI was selling assets to reduce its debt and that its restructuring charges will drag into next year:
"CAS was a drain on cash (just to stand still) for a long time, so this will help longer term, but it locks CPI out of the opportunities in the higher-return illiquid offshore asset market (cf Sanne) which would have been a material growth opportunity had CPI chosen to pursue it."
Analyst Michael Donnelly said the restructuring, downgrades, and disposals are all due to underlying problems it first mentioned in its January 2016 initiation:
"These concerns are not in any way addressed by anything in this morning’s statement. No mention of the reseller business, no new big wins, no structural step up in capex, and no re-evaluation of the balance sheet. We believe that all this is yet to come, against a background of accelerating weakness in many of its core markets."
On its restructure and asset sale, Capita said it remained focused on providing expertise and the capability to deliver technology-enabled outsourced solutions, and that to best position itself to deliver its strategy, it was undertaking a wide-ranging restructure:
"Reorganising our 11 divisions into six market-facing divisions (five post the CAS disposal) will reduce complexity and increase oversight, providing better accountability with a more streamlined management structure, reporting directly to the Chief Executive. The divisions’ sales teams have been aligned with the central major sales team to strengthen our sales efforts, enhance our sales propositions, and better penetrate our markets. The new divisional structure will be in place from the start of January 2017."
Shares in Capita fell to their lowest level in ten years on Thursday at 5.20p, nearly 60% less than their peak in mid-2015, making it this year's biggest faller in the FTSE 100.