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ONS latest release on the state of UK PLC makes for a sobering read:
https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/march2024#revisions
It's difficult to imagine how this dreadful financial state does not end up with savage public spending cuts in the near to mid term future... Given CPI's reliance on continued Gov spending surely there will be fallout for CPI arising from accumulated poor economic management of the UK Gov coffers?
@Savage
The great thing about CPI is that isn't not reliant on winning more contracts (during any downturn in the economy) with almost £3billion/annum contracts already won).
Others have said that CPI did pretty well whilst the last Labour Government were in power and there is no reason why they shouldn't thrive with the next Labour Government too.
Finally - a lot of the stuff done by Capita has got to be done by someone / something (like running ULEZ or collection the BBC license fee) - so (to quote Buffet) - some of those contracts create a moat around Capita (in that they are best places to continue delivering them) ....
All we need here is FCF from the £3billion revenue then we will be flying!
"a lot of the stuff done by Capita has got to be done by someone / something " - aka the too big / too important to fail argument... wonder where we've heard that one before?... If cuts are demanded, then cuts there will be, all said imo of course and DYOR.
@Savage
Certainly not too big to fail .....if it can't turn a profit (soon) then it's almost certain to fail ... as you can't keep losing money forever!
It's more that we don't need to win NEW contracts to survive (in a downturn) because we have a lot of business already contracted and being delivered! But is it profitable? Who knows? I hope it's profitable business but the market is expressing doubt!
Most companies live (or die) by the need to achieve short term sales forecasts (usually quarter on quarter) but the very nature of our signed, long term, contracts give us an element of stability (in a volatile world).
I just think the amount of signed contracts being delivered should protect us from short term volatilities.
Assuming there are public spending cuts (this is not a given due to Labour's track record of tax/borrow and spend spend spend, also don't forget the new £800m AI/drone slush fund that's floating around and should still be there next parliament to fund things), then how would this work in practice?
Does the government refuse to honour existing contracts and demand suppliers renegotiate? That's possible but would be tricky legally and there's a risk CPI could just say "OK, cancel the contract we're withdrawing all our staff from site" with complete loss of service followed by redundancy which is tricky politically. Or would Labour just go straight to playing the nationalisation card? That's very risky for the UK PLC reputation and Starmer isn't Corbyn. Therefore, I don't see in-flight contracts as being at significant risk because of any government budget constraints.
For new contracts/renewals there will however obviously be pressure to reduce the price. If CPI was still run by JL then I would say there's a big risk here as he'd bid with no thought for the company long-term health, but AH knows how to run a company and he will only bid if he can still make a tidy return. This means CPI may lose some of their low margin contracts (assuming cost is the customer's only decision metric), but their competitors will then be at risk of running a loss-making service as they will inherit all the problems CPI had. Don't forget, those same competitors will also be feeling the pinch and will be under pressure so may just decide taking on an ex-CPI contract is not a sensible idea. Other competitors such as Fujitsu also have other problems to worry about.
From a CPI point of view, losing contracts can also be revenue positive - a) you TUPE all the staff costs (including pensions) off your books onto the new supplier, b) depending on office ownership there may be a debt/liability reduction or chance to generate rental revenue, and c) the new supplier pays you "handover" fees for knowledge transfer etc. I've worked on several contracts like this, and the final year profits from the transfer fees alone often exceeded the actual normal profit for the contract.
My view is that losing contracts only really becomes a problem if a) you are still stuck with all the costs, and b) your reputation is in tatters such that you can't win any new business.
As I mentioned above, the key here is that AH is in charge and not JL. I am sure AH knows how to run CPI much more effectively than JL ever pretended to. Or at least that's what I hope as I'm long on CPI - 1.4m shares at just over 17p which I stupidly didn't sell at 22p when I had the chance as I believed all the BS that JL was peddling.
At the end of the day you need to ask yourself which company is the market going to like more: The 3 billion revenue org making 1%, or the 2 billion revenue org making 10%?
Thanks both for taking time to post your thoughts, and I'm curious to read/learn more... hopefully some others on here will post their take/viewpoints too.
Quite the opposite - the whole concept behind outsourcing is that it can be delivered cheaper. The economics stack up and rather than a reduction in the possibile opportunities, they will increase if anything.
Governments spend money based on needs of the public and or to maintain their standing globally. And they will find money in various ways. The services provided by Capita are essential and necessary and therefore the demand is very inelastic imo. Same applies to funding Ukraine war - tens of billions - because govt thinks it is necessary.
That said , there may be cuts possible , but not to the extent of derailing Capita, because of the importance.
Then again we are talking subjectively. Because Capita does not provide services just only to UK govt but also to other govts as well. Not only that, their customers include private sector businesses as well. if anyone has information of its revenue split between , UK Govt , Other Govts and the private sector it would be more useful.
Having a CEO of AH caliber, I will assume they would foresee these headwinds and endeavor to shift the revenue mix between govt and private, more towards the later. All IMO. GLA
I don’t think there is any relief to be taken here at the prospect of a Labour government. Indeed, it would seem to be another risk factor. It is Labour Party policy to reduce reliance on outsourcing in local government. They would rather see councils following the example of the best in-house service providers and rolling these out wider. Of course, this may not happen when policy meets reality, but there are certainly no votes to be lost in ditching Capita. A Labour government might even see it as a vote winner toward the end of its first term.
RogueRiver - right now, under a Tory Gov, CPI is around 12.9p... Are you suggesting you're pleased with the current situation and fearful of that changing?
Rogueriver is taking out his frustration having encountered 82% loss on investment elsewhere. Allow rogueriver to vent it out imho
🫷defo not taking any investment tips of you rogueriver lol imho
Old news, AimMaster. I mentioned taking a huge hit on Mobico on these very pages a few weeks ago. What I haven’t done is to keep ploughing money into a loser. I generally put a fixed sum into a holding and then leave it to sink or swim. I’m sure many Capita investors wish they had done the same.
Not really, just accumulating! If your strategy is to put fix amount in what I called a dud stock and lose 82%. I guess any person on the street could adapt the sake strategy and hope it sinks or swims. No brain cells required, just a dart board with stocks dotted all over and buy in eh? Imho
@rogueriver 'I’m 82% down on this train wreck of a company' that wasn't few weeks ago. It was posted yesterday 22nd April 2024 so it isn't 'old news'. Lol. imho
No AimMaster, I have mentioned losing on that investment several times over the last few months (they are there for everyone to read, it they are that interested). Yesterday was the latest mention, that’s all. It represents about 0.3% of my portfolio. Of course it’s annoying, but also a reminder to spread your risk across a range of sectors and companies - and not to go chasing your loses in a failing business.
As I mentioned before, we might see a lot more 'insourcing', once Labour get into government. It is yet another risk factor for Capita. Let's face it, Capita are generally loathed by the press and public (admittedly, not always fairly), so Labour can probably smell votes to be gained here.
"Insourcing win at Barnet council
Over 300 staff in a variety of services like trading standards, environmental health and other regulatory services, will now be transferred back in-house
Staff at Barnet council are due to be transferred back to council employment thanks to a decade-long campaign by UNISON.
The 330 affected workers are currently employed by outsourcing multinational conglomerate, Capita, and are being brought back in house after the council was used as a test case for the outsourcing of local government services.
The staff who work under a joint venture called ‘Capita Re’ in a variety of areas like trading standards, environmental health, planning highways and other regulatory services, will be TUPE transferred back in house on 1 April this year.
In 2012, much of the service provision at the council was outsourced to Capita on decade-long contracts by the Conservative-controlled council, with the intervening 10 years marred by several controversies including a multi-million-pound fraud and contracts running vastly over budget."
https://www.unison.org.uk/news/2023/01/insourcing-win-at-barnet-council/
Rogue River this is over a year old. I think you are going to see a strategy which looks to the private sector rather than the public sector. There is just not enough cream in the public sector
Trisor. I didn't claim it was breaking news. It merely serves to illustrate what may happen on a wider basis, with a Labour government in power (which is all but inevitable later this year).
Rogue River I would retort that you didn't express the date of this either which I think would have been useful. Do you have any other examples of this occurring in the last 14 months ?We have long term contracts, a driven CEO with a proven track record, a new direction and I think you are going to see a strategic shift way from the public sector. I don't know an industry where there are not unhappy customers. It would be great to see some balance from you on the opportunities as well as the risks
RogueRiver I think it will be interesting how much work is actually taken back in house. The motivation is basically empire building as the more work is taken in house the bigger the council staff etc. The problem is that it is likely to cost a good deal more than outsourcing as councils are incredibly inefficient, however the council leadership may not care & just forge ahead spending our money until they go bust.
Personally I think it will be neutral but we’ll get a much better idea of how Capita intends to grow withe the June update
All I know is we were doing OK until us pre market scuppered that. Skanks.
Culley01. As I’ve said before, it may not happen at all, but it is another risk factor. As far as insourcing is concerned, Labour policy appears to be to take the best examples of in-house services provision and use them as a template for other councils to follow. So, for example, the Brent plan might be promoted more widely and enthusiastically under a Labour national government. As I say, bashing Capita is unlikely to be a vote loser for a new Labour government seeking ‘fresh’ ideas.
RogueRiver... You stated "bashing Capita is unlikely to be a vote loser for a new Labour government seeking ‘fresh’ ideas."
Do you ever take a moment to pause and consider that right now Capita looks as though it's been given a thoroughly monstrous bashing by the current illustrious Tory Government?
Savage_KeyboardR. No. The Conservatives have been largely supportive of Capita. They haven’t exactly been cheering them from the rafters, I know, but they have been content to leave a things as they are, with little intervention, probably content for Capita to take any flack, so ministers don’t have to. Capita’s problems (COVID excepted) have been mostly of their own making.
I’m not sure Labour will be happy to continue with this ‘hands-off’ arrangement and may see it as an opportunity to be more proactive regarding public services.