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TerryM1, you must have a helluva perspective on CPI given that you've been a shareholder from the beginning. Perhaps you have a view on why Capita was successful as a growth company back in the day versus why it is struggling now? They started as a public sector outsourcer, which the core business still is. In your opinion, why are they failing now where they succeeded back then? I'd be genuinely interested to hear your thoughts on this?
It might recover dramatically if the new CEO can execute a turnaround on the core business by arresting the churn (impairments) and rationalising for edbitda and FCF. The long term outlook could then be further improved with the right strategy for AI efficiencies (and an ex AWS leader would be well-placed to do that).
JL needs to get out of his way immediately. I don't buy the line that we need JL as an account manager for the cabinet office. He should just go.
IMHO
Not worried about Labour's almost certain victory in next election. They are more blair then corbyn now and Capita did very well under blair
Trenners, to answer your question, what is driving the fall is their failure to make a profit and generate positive CF. Not because of the cyber incident - as you say correctly - but because of churn which they call hand backs (churn in public sector contracts) and contract impairments (churn in experience division). They are losing goodwell off the balance sheet in unpredictable chunks and it's killing the ability of the core business to make a profit.
I hope Adolfo has the cojones to turn it around. JL did not and should go immediately.
agreed ... it is a total **** show
No Xenor, I'm not suggesting insider trading. I'm just wondering why they are not buying at these low prices.
I've no idea, but it makes me very uncomfortable.
What do the II's and the directors know that we don't?
I've done some googling about into the causes of these losses. It's a mixed picture but here it is:
1. Handbacks to local govt.
Best understood by reading this: https://www.unison.org.uk/news/2023/01/insourcing-win-at-barnet-council/
This may or may not continue. But if labour win the next election, I wouldn't be surprised to see a pattern dragging on.
2. The commercial settlement in experience looks like it might be a lost contract. If Capita loses more contracts in any of its core divisions then there will be more losses like this. It looks down to how they control churn and net recurring revenue. But there is no reason to see this as an isolated incident. There might be more, there might not.
3. The impairments caused by disposals. This should improve as there's not much more to sell. Only 2 or 3 left?
In summary, the impairments are isolated, but the hits from hand-backs and churned contracts may not be.
The other factor that is worrying is why IIs and insiders are not investing at these low levels. Remember that if you sit down at a poker table and can't figure out who the patsy is ... get up and leave. It's you.
IMHO GLA
The SP has collapsed since the mid-year TU because Capita reported a loss and a cash outflow. Let's break it down and look again at the presentation.
Slide 9 is key: 'Cash flow and net debt movement'. It shows that "Cash generated from operations reflects non-cash nature of commercial settlement in Experience, hand backs in Local Public Services, direct cash flow impact of cyber incident and furlough repayment."
Question: we can see that the furlough repayment and the cyber incident are non-repeating costs, but what about the other two? What is the exact nature of this 'commercial settlement in Experience?" Can anyone explain?
And what is the precise nature of these 'hand backs in local government'? What are they? Will we see more of them in a repeating pattern? Anyone know?
Together with the goodwill impairments from exits, the net effect is a demolition of profitability and FCF. This is what the market hates: an inability to generate cash and profit. This is why the share price is crippled.
Please don't just pile in with a load of vague ramping. We need to understand these causes of our current poor performance. In particular:
From slide 9:
1. What are the hand backs to local govt? Which contracts? Are there more to come? Why handed back?
2. What is the commercial settlement in Experience referred to on slide 9?
From slide 8:
3. What exactly are the business exits that represent a loss of 34.7m?
4. What exactly does the impairment of goodwill (42.2m loss) refer to? Which businesses?
Any specific insights and answers? We need to understand these questions if we are to know whether or not CPI is a value share or a value trap. They are key to understanding whether or not this business can return to profit and growth or whether it is in a terminal decline.
This is a very long term hold and no growth to be had this year imho ...
I suspect a profit warning likely given that the first half was a fail.
Needs a new management team that understands the need to make a profit / ebit / FCF
2025 might be good though. See you then.
IMHO
I'm just going to HOLD, go away and come back to look in 2025.
It would be madness to crystalise a loss at these levels. Yeah - Schroder might still be reducing and there could be a swoon into the teens, but I'll leave those bargains to Aim and content myself with my 24p average.
With new management this company could have a future. I give up on the 'medium term' back-slapping clown show for ... well, the medium term I guess.
GLA
Thanks for sharing, NF.
I don't like her use of the term. 'medium term'
= never never imho
Yeah - Marconi failed because of reckless leverage .. not comparable here
I'm exactly the same as you, unhooked. I've averaged down all the way from around 40p a couple of years ago. My average is now 25p .... but I have a lot of these penny shares and no appetite to add more. If Schroder is indeed exiting its position then we may see mid or even low teens in the weeks and months ahead so I might be tempted to pick up another 100k or so around 12p or so. A long journey ahead through a deep dark tunnel.
The sooner we get rid of Lewis and Louden the better, then we can get on with the real turnaround in creating profitability in the core businesses. IMHO
The other obvious risk to PIs is that it gets taken private at a low SP ... The market cap is is a meagre £340m today. If this was the 80's it would have been broken up and sold for parts by now.
Hear hear
The BoD are men of straw imho
Crow, how would you define a value trap?
A value trap has no bottom unfortunately
Other than zero, of course
Yeah it's a total rout.
The problem is that CPI is now technically a value trap (defined as a cheap share with diminishing earnings) thanks to the incompetence of its board.
On the upside, there is an underlying business that could be turned around. But that task is beyond the ability of the current management. I'm hoping to see some big changes there in the days and weeks ahead, which will make the beginning of the Real Turnaround.
IMO GLA
To his credit, NF bought in cheap and is now ramping. He has bragging rights. For now anyway ....