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All are pinning their hopes on AH to turn CPI around. Has anyone gone through the Annual Reports of SDL Plc during his time there. It is very interesting.
Year before he joined the Revenue and Adjusted profits were £267mn & £21mn & that for the year before takeover were £376mn & £37mn. Huge achievement, though from a relatively small base compared to CPI. But how he set about it , three year plan etc are in the first year -2016- report. BTW, Xenia Walters was the CFO during his time. GLA
Simpiles, Good for your research. What is your take on this. Has the property rationalizing already been completed and the benefits factored or they are yet come. Thanks.
I'm an ex-employee, a non-investor (in anything, other than my pension)
As others have said, forget the AI and automation fluff. That's huge investments for small gains as it has to be treated on a client by client basis. There was previous marquee transformations - namely O2 - but they had the scale for investment. Many contracts don't.
There's plenty of fat in good old-fashioned efficiency drives - centralisation, nearshoring and offshoring, sweating the management ratios. That will be the story of the next 18 months. I've said previously, I'm now hearing from colleagues that umbrellas put up by CEO-2 management previously are gone and more hardnosed redundancies are happening - less 'oh this person does special task X' and more 'these roles are eliminated / off to India, shut up and make it work'
It's definitely testing us out to the max JG68. We need nerves of steel with cpi. Only hard as nails will survive it.
Missing out on yet another rally day. Despair holding this 5h1t.
Hi Aim
As far as I know the reduction in the property portfolio is only restricted by contracts. There are already plans in action to terminate leases on renewal. There may be plans in action to transfer leases or sublet based on minimum cost to the company. This has all been in plan for some time.
The service design is mostly in place .
This information may be available by searching previous Capita announcements. I can’t remember dates but would be around 2 years ago!
Remember DYOR
With positive fcf predicted next year, these buy revommendations and target sp values all seem reasonable to me. I'm certainly holding here.
Looking forward to next updates, and when cpi makes the next unexpected rise to 30s.
Thanks nofear, recommendation is 'buy' by all and 'hold' lowest target price giving a return over 30%. The city playing the PIs? Imho
Latest Capita Plc Brokers Ratings Update Screenshot from institutional investors grade platform.
Including the Numis Securities 15th March 2024 buy rating. The [restricted] broker rating dated
11th March 2024 with [overweight] target price at 40p belongs to Barclays analyst James Rose
Latest Cpi brokers ratings that none of the UK shares websites wants you to know about it apart for the RBC one
and their 18p downgrade rating that shoot cpi well down in the sink hole.
Click here AimMaster2018 https://ibb.co/WWGSd6d to view the image
Barclays website (last updated on 06/03/2024) shows forecasted profit before tax predicted by analyst for 2024 to be £117.95m. If achieved, profit would be around half of today's market cap imho
One very relevant point made by AH was that many existing contracts are tailor made & as such expensive to design & run. He is going to simply the process by having 90% of the contract on a standard basis with the fine tuning to individual contracts carried out in the last 10%.
This should make contracts simpler & cheaper to design & run, reduces duplication, enables margins to improve & widens the scope for bidding for new contracts as well as reducing headcount.
If you look at the stocks in the sector, they're mostly hitting new all time highes where as you have this hitting near all time lows.. so yeah cost reduction with £160m savings could be a start of a re-rate imho
Further reduction in property footprint, should drive down net debt. So if they achieve the margin of 6%. The profitability likely to be close to today's market cap. Today's SP could be historic as the business has a strategy and purpose. If they execute the vision well
Imho
I feel last 6 7 years was about getting rid of loss making contracts, getting rid of non-core businesses, its harder to finance growth in all the sectors and divisions they were in. Now to two divisions. They now at a stage to simplify core businesses, be more lean and efficient to increase profit margin and use it to growth the two divisions. It must be highlighted, the Company after the disposal, still have revenue just under £3bn. Any new contract is signed on better margins which they hope to increase to 6% ish. So you can see how quickly it can flip from loss making to profitability.
Imho
At present re CPI instead of the market looking forwards 1-2 years it’s looking backwards 1 year. So effectively we have a 3 year difference in comparison to most of the market
Once FCF is achieved & hopefully debts reduced to relatively insignificant levels then I believe the market will start to look at CPI in terms of growth
So if FCF achieved in 2025 the market should be anticipating a growing profitability in the coming years which will have a dramatic influence on the SP
This I found useful below.
Capita faced numerous cash drags in FY23, notably £20m in costs associated with a cyber incident, a £30m pension deficit contribution and a £20m increase in technology capex, which depressed the adjusted free cash outflow before disposals to £116m (£42.4m outflow in FY22). Despite these challenges, the implementation of a rigorous cost efficiency programme and the strategic divestment of non-core assets have the potential to fuel a turnaround. Some £160m of annualised cost savings are expected to be realised by mid-2025 (part reinvested for growth), aimed at bolstering a significant improvement in operating margins. As margins improve, shifting to faster-growing market segments with a more competitive cost base could catalyse a reduction in the valuation discount.
- The challenges highlighted has happened in 2023 and market has been punished for past events.
- the 'bear' points on the article is questionable. First, the company renewal dropped on price. Which was expected as the company is trying to win contracts with higher margin to be profitable rather than fulfilling contracts at lower margin that has been the problem of the past. Secondly, negative free cash flow is covering cost of saving £100m. The majority of this outflow is covered by the payment received from fera which wasnt covered in 2023 accounts. But the cost saving of £160m is long terms benefit. Thirdly, it mentioned cyberattack. This technically applies to every company. The cost again has been factored into 2023 accounts.
The lowest price one analyst have set is 18p. And another 23p? And ones nofear found are way above that. So at 13p. With no pension payments from 2025 onwards, £160m cost saving, margin improvement and in tech space thats being digitalised and AI implementation. Future looks bright ? Imho
https://www.smartkarma.com/insights/capita-group-capitalising-on-a-more-streamlined-business
Imho
@ryanf - the real investment thesis here isn't AI and all that fluff, but that the new CEO, AH, is serious about getting costs on track via headcount reduction and finally aligning that with the revenue base. Don't get sucked in by the MSFT/AWS partnership thesis and these being a game changer here - these aren't USPs for Capita. Every outsourcer out there does it and one needs to be foolish to think otherwise. These is what I've been consistently flagging to the 50p 2024 target prognosticating blind bulls on here - blind hope around AI isn't an investment driver. First get your costs under control and the material upside will land when the economy turns and the Experience sector, through its consulting business lands additional higher margin business. This, IMO, will play out starting in H2 2024 as rates start coming down and confidence returns to business spend and the consulting sector.
I think this will do well from H2 and from these price levels, we'll sign 100% returns as we move into 2025 - All, IMO. My average is now circa 21p and sitting on large losses with my holdings, but will look to start adding more in the coming days to get this average down. This was at point my highest value holding, but that has now shifted to SFOR. However, there's still cash in the pot to slowly accumulate at these levels. I'll start doing this next week!!!
Good luck.
Check out my “Some analysis” thread started on 17 March. I got some stick for highlighting the risks - especially around liquidity ratios - while also being long on the stock.
Despite the issues, I like the business model, the CEO and the strategy. I also know Capita having worked closely in same industry a few moons ago. I believe it can be turned around to become a huge MS and AWS reseller and trusted digitalisation partner for current customers . I also expect a rebrand soonish
Been watching Capita for a long time (years) but never did enough research to pull the trigger. Now at all time lows I did some, and noted a few things:
New CEO.
High net debt.
Breakeven FCF only in 2025.
PE of about 13 using EPS.
Some disposals came through too late for FY23 so will be allowed for in FY24.
This is what I observed in the financials. Watched the webcast with the new CEO, seems switched on and prepared to use outsourced technology to make the company more efficient.
Can those who have a lot of knowledge of the business give the investment case as to why they think the company will turn around, and what are the risks?
GoCPI, it was seeing your username from S4 that made me revisit researching Capita :)