Member Info for JG68

I'm sticking with cpi and thg at the moment, cpi def feels different this time, could well fly through 50 this week.
As for NEX what can you say, havnt seen any broker upgrades yet, it's baffling me.

This share really tests your patience

Continued

AI based innovation is important & growing. Gave example of Scottish Power new contract, using chat bots, customer “delighted” with the service

Going concern - auditors “material uncertainty” view was eliminated in latest results. CEO praised CFO, who rebutted this, saying it’s the strong cash generation (mainly from disposal of Pay 360) which caused this to no longer be required - seems a good dynamic between the CEO & CFO

Dividends - not yet committed to anything definite, but it seems obvious that divis will resume in 2023, since it should reach a net cash position

Summary - I think this looks very interesting, with possibly a lot more scope for this share to re-rate further (if I had to guess, 70p strikes me as possible, with patience, versus the current 39p)

Plan to double EBIT margin from 2.9% to c.6% would itself drive share price a lot higher, I reckon

“De minimis” financial debt now expected by mid-2023, maybe even net cash - that’s totally transformed from a couple of years ago, and it seems to me this could now be driving a re-rating of Capita shares

Pension deficit - pretty much sorted, on both accounting (already in surplus £40m), and soon to also be actuarial basis, probably

Inflation protection already in most contracts

Upbeat outlook comments

Dividends due to resume this year, probably

Put that lot together, and I suspect we’re seeing a sustainable re-rating in this share, and it still looks cheap. Whereas just over 2 years ago, it looked like a complete basket case.

Overall then, it gets a thumbs up from me, but I do want to reiterate that it’s a large complex business, so I’m a little out of my comfort zone analysing this.

Market cap £659m

I flagged this share on Friday as looking like a potentially interesting recovery share. This weekend I did a bit more digging, but am still only part way through my research process. Previously I rejected Capita as way too high risk. Indeed, re-reading my notes here from Nov 2020, Capita looked insolvent, with a balance sheet that had negative NTAV of a staggering £(1.6)bn.

Since then, the group has been transformed, with loads of disposals, and only small dilution from new share issuance. The balance sheet at end 2022 was still quite weak, but NTAV was £(360)m, a dramatic improvement.

Net debt has also been almost eliminated, and is expected to move into net cash by mid-2023, with further smaller disposals.

The financial risk has almost gone, so it’s a completely different investment proposition now, and it looks quite appealing to me.

Results Webinar

I made the following notes of the main points whilst watching the recording of this webinar, for FY 12/2022 results -

Moved into profit

Positive free cashflow

Big disposals almost eliminated net financial debt down to £85m, with remaining disposals expected to at least wipe out this remaining debt later in 2023

Resilient business, with long-term contracts & very high renewals rate of 97% - which it says proves the quality services provided

CEO describes his 7 years at the helm thus - 2018-21: transformation, 2022: stabilisation, 2023: acceleration

Good pipeline of new contracts

Capita Public Service division: £1,445m revenues, £91.5m operating profit, a decent enough 6.3% margin

Capita Experience (which seems to be private sector clients): £1,151m revenues, £38.5m operating profit, a lower margin of 3.3%

Pension deficit funding - now £30m pa, due to fall to £15m pa. Now in accounting surplus, and the CFO reckons the 2023 actuarial valuation is likely to also be in surplus. So it looks as if the pension deficit should be permanently resolved in perhaps 2024.

Capex - being spent better now, “capex goes a lot further now” (CEO)

Cost reductions continuing, including making more use of its outsourcing (IT, etc) operations in Poland, S.Africa, and India

EBIT margin of 2.9% expected to “at least double in medium term”, CFO warned not to expect too great a step change in 2023, so this will be gradual

Revenue growth guidance in next few years, is c.5% pa

Cash generation in 2023 likely to be similar to 2022’s £99m

Embraced hybrid working for staff, lowers office costs, and reduced absenteeism

CEO - key phrase used, “We’re NOT going to repeat the mistakes made in the past”

UK public sector - Capita has 10% market share, with strong growth potential

All contract renewals saw improved terms, and two thirds of contracts already have in-built protection against higher inflation. CEO reckons they can be more aggressive on pricing in future

Experience division - large, growing market. Book to bill was 1.2 in 2022

Really surprised no analysts have rated yet either.

It's 1 more step towards being debt free and building up a little cash reserve for possible shareholder returns in August HY results

Nicely timed JL, to keep momentum, all we need now is a broker buy rating

We'll all have mansions if we hold and it reaches a quid!!

Aimaster
I'm averaged at 25 in a sipp and trading account, like NEX I've held these averaging down for 2 years, so not sold out.
Every time I post something a little bit questionable I get accused of selling out!!!
The question really is, is Aim going to end the week long or go short again IMHO

Anyone know why simply wall street now have this as 700% overvalued?

https://simplywall.st/stocks/gb/software/lse-cpi/capita-shares/valuation

Thanks

Can Moulding change his mind about giving up the golden share ?

That's my point joseywales they say the goodwill was as a result of an increase in the discount rate, driven by increases in government bond yields and the cost of debt.
So given the increase in bond yields and higher terminal interest rates leading to recent downturn in equities, mainly US, it could be something the market was marking NEX down on in correlation to recent increase in bond yields, which isn't something I've heard any other CFO explain when explaining a statutory loss.
Longerguy your last post is very reassuring also.

Plus, thanks longerguy, it's shame when after months of people discussing possible reasons for such a poor sp, that when someone suggests a possible reason, people are so cynical.
Why don't you sell your quick trade Craig, you've suddenly appeared on here with an attitude, people are generally respectful on this board and go on the offensive straight away.

Peaky is just giving me back some of what I gave him previously.
It was him who accused me of lying about the email response from Louise at IR.
There's no way I'm selling these , why would I?
Dividend, capital growth, I've waited 2 tears why sell now.
I am just trying to highlight that every day on Bloomberg they are banging on about the 2, 5 and 10 year bonds, which are increasing on days when stocks are selling off, especially in the US, and they NEX explained the reason for the loss in Alsa as I posted above, as bond yield related and cost of debt.
So it's plausible that this is why the sp has been so weak.
Plus this is the same Peaky who was banging on about being a buyer at 150 last year, but now says he's all in at 125.

Bond yields been rising again due to uncertainty around world interest rates.

Underlying Operating Profit of €121.8m was 84.8% ahead of the prior year, with a 290 basis points uplift in the Underlying Operating Margin to 10.8%. After separately disclosed items of €321.7m, this resulted in a statutory operating loss of €199.9m. The increase in separately disclosed items reflects a non-cash impairment of goodwill arising solely as a result of an increase in the discount rate, driven by increases in government bond yields and the cost of debt (as discussed in the CFO Review), with no change in the trading outlook of the business.

Close was 38.84, can't see how it's false.
I guess a lot depends on how the markets are Monday, may get a buy broker rating.

Joseywales
I'm actually shocked that they havnt reduced more, and doesn't look like it today either.
Even if they are holding some that they possibly bought in the large UTs last week, it would be nowhere near enough to close .
Surely they're running the risk now of this really taking off quickly, possibly after some broker ratings as and when.
Or because of fairly low general volume with NEX shares, they think they can still make money.
This possibly needs some IIs coming in to take the dividend and capital growth.
I mean really we were all saying how 140 was massively undervalued only a few weeks ago and here we are.

Ditto, I remember it moved like this in 21 didn't it, but this time will maintain it.

Cpi