RE: Private equity circling?11 Aug 2024 23:14
PE or MBO is out of the question - neither will happen. The cost base of Capita is far too high - lastest employee count was circa 41,000 - that's a very high overhead for a company where revenues are in free fall and profit margins are wafer thin. As most bankers would know, AH propped up profits by selling assets - and thereby appeased banks/funders (and shareholders) for the time being. Cannot see AH selling more assets for at least 9-12 months - but it depends if forcast profits look shaky again (for example Labour increases minimum wage etc.), in which case AH will be selling more assets to boost profits again. AH will be very concious that profits must continue to trend upwards come what may.
Capita's parts are worth more than it's whole - but after selling too many more assets, what's left...a shell of a company with a proportionality high cost base.
Rather than a PE or MBO (no takers on either), it's more likely AH would sell off a few more of Capita's parts over time until a small and lean 'New Capita' is left. AH has to steady the ship with investment in technology to improve margins and reduce employee costs, develop sales to public and private plcs (where the margins are higher), reduce sales/bids to UK Govt (except in the most profitable areas), and sell off any parts (i.e. businesses) and merge/close any departments which are loss-making.
It's a long road for the Capita turnaround, so be patient, very patient. In the meantime, there are lost of other sound investments on the LSE which appear to be under-valued at this time. As investors, we're pretty spolit for choice at the moment.
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