So called expert view from late 173 Feb 2018 15:37
Don't ever get sucked in by a brokers note...this was Numis take..FFS
Capita (CPI) 565p
Forward PE’s discount to 10-year average: 52.7%
At 9.3 times consensus forecast 2017 earnings per share, support services business Capita (CPI) is trading at a more than 50% discount to its average PE rating over the last decade. A key reason behind this discount was a nasty profit warning in September 2016. Numis says now is the time to buy the shares.
We think the company’s problems are both fixable and more than reflected in the share price. We see scope for a recovery as concerns over the debt situation are addressed. However there remains a big question mark over how quickly the recovery will happen.
On 29 September 2016, the firm downgraded its full year pre-tax profit guidance to £535m-£555m versus previous market forecasts of £614m. It pointed to a slowdown in some trading businesses and continued delay in client decision making.
In December 2016, it downgraded profit guidance again blaming further weakness in its IT Enterprise Services arm. The company announced plans to sell assets to repair its balance sheet after some analysts had speculated a rights issue would be required.
Broker Numis expects proceeds of £800m from the disposal of the Capita Asset Services and Specialist Recruitment. It forecasts this money will reduce the company’s net debt to earnings ratio from 2.9 times to 1.7 times by the end of 2017.
Numis also expects Capita to generate £840m of free cash flow between 2017 and 2019, more than 20% of the current market cap.
The potential value opportunity has been seized upon both by company insiders and high profile investors.
Chief executive Andy Parker snapped up nearly £100,000 worth of shares in December 2016 and well-known fund manager Neil Woodford has taken his holding in the company through his CF Woodford Equity Income (GB00BLRZQ513) fund above the 10% mark.
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