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Capita’s ‘damned hard work’ pays dividends as shares soar
Tom Howard
Friday March 03 2023, 12.01am, The Times
When Jon Lewis took over as chief executive at Capita in 2017 its debt was more than £1 billion - today it is £85 million
Dividend payments could resume at Capita next year after the outsourcer swung back to an underlying profit in 2022, a feat its chief executive said was “the culmination of a few years of damned hard work”.
Once the biggest of the British outsourcers, Capita has been in recovery mode since Jon Lewis took over as chief executive at the end of 2017.
One of his first moves to get the company back on track was to suspend the dividend. Over the past five years, Lewis and his team have sold several “non-core” businesses, proceeds from which have been used to reduce debt. Another £485 million of businesses was sold last year.
When Lewis joined Capita, its debt was some way above £1 billion. It now stands at £85 million and by the summer the company is expected to have more cash than debts.
“The material uncertainty on the balance sheet has been removed,” Lewis, 61, said. “Between now and the half-year results in August, we will spend time defining and implementing the right capital structure for the business . . . and the board will make a decision as to what we may or may not want to do with regard to a dividend in 2024 or 2025.”
The possibility of the return of the dividend, plus a well-received set of full-year results, pushed Capita shares up 5¾p, or 19.7 per cent, to 34¾p, their highest level in more than a year.
Last year it did not have to compensate any clients for missing targets within its contracts, which range from recruiting for the army to running call centres for companies. That helped to lift adjusted pre-tax profits, which strip out the impact of the non-core sales, to £73.8 million in 2022, turning around a loss of £122.8 million a year earlier. Adjusted revenue rose by 2.4 per cent to £2.85 billion from £2.78 billion.
This. The UK business represents circa 10% of the group’s worldwide business- and the West Mids operation is a fraction of that. That said, NEX seems to be a holding always looking for an excuse to fall at the moment, so don’t expect a quick recovery. The divi is some compensation while we make the slow climb back to a normal market cap.
I hope you are right, as 46p is my break even price on my current holding (though I have done very well from CPI in the past).
Holding over the last 3 years has been wretched. I doubled my current holding a few weeks ago at 25p, as the writing seemed to be on the wall for good results and better times ahead.
Excellent news. The divi will certainly sugar the pill while this climbs back to something like a normal market cap. How it ever got so low is a mystery.
I remember being tempted to buy in at 500p in late 2015. Dodged a bullet there. Bought at 100p last year, only to watch them dive to 70s. Glad they are now on the up!
Sold my holding today at 25% profit. If it was paying a decent divi, I'd have stuck with it, but I think it may have peaked for now. Even if it hasn't, 25% in 18 months will do for me.
If you held this through the pandemic (I did) and watched it halve in value, you're hardly going to be spooked by a 10% drop. It just means cheaper divi re-investments for another year.
A lot of investors have obviously had enough of playing snakes and ladders with BARC and are calling it a day. The bank seem regularly to hit the headlines, for all the wrong reasons. Look forward to it bouncing around in the 160-170 zone for another year. God knows, you should be used to it, if you've held this share for any time.
I've been a BARC holder for several years (mostly at a net loss). It's like LGEN: It pays a decent divi, but if you're looking for growth, forget it.
The fire platform comment was a little Ratner- esque and I’ll-advised, given that the company is in a tentative recovery. It was bound to be the headline, regardless of what else he had to say. Will it affect RR in the long term? Almost certainly not.
I bought in here at 73p last April, so I'm very happy to see the gains since then. The intra-day price fluctuations can be crazy though. An ex-AIM MM once told me he could swing some AIM shares 10-20% either way with just £10K. I wouldn't be surprised if their isn't a bit of that going on here. In the long run, it doesn't matter though, as the SP is obviously moving up on very good results.
I bought into ICP at £10.53 three months ago, mainly for the excellent divi. Great to see the market cap rising since then.
I think many people are overthinking this. It’s just a crap holding at the moment, probably for no particular reason. Just stick it on the back burner and forget about it for a while. It will probably double in two years.
I’m sure this dog share will take off eventually, but it’s obviously going to be a very long haul. It’s one of my worst FTSE buys, along with Wickes and Taylor Wimpey (at least they are paying a divi though).
Hi Dimi123. I appreciate HB is cyclical. The problem with Wimps is that it couldn’t even rally in a housing boom (TW has lost circa 40% during the most recent housing boom). I don’t think there is anything particularly wrong with the company, but the City clearly hates it - and the sp is going nowhere.
Sorry to be so negative, but in the circumstances, I think I’m entitled to be. As I said, I’m hoping someone will make a bid, then at least I’ll cut my losses. Meantime, it stays on the back burner and we’ll see where it is in another 5 years. Thankfully, I hold more successes than failures. Rubbish like Wimps are a good reminder of why it’s important to have a diversified portfolio.
I think there is still a good deal of hostility toward the project from (previously enthusiastic) local investors who made poor investment decisions regarding Sirius. It is unfortunate that investors lost money there, but it was a risky investment and you only had to read some of the comments on the Sirius mb to realise that some people were risking far too much of their money in Sirius. Sadly, greed and naivety can overtake common sense when it come to investing.
Not even the property boom of the last few years could boost this share's dreadful performance, so why anyone is expecting it to jump, as we go into a property correction, I don't know.
The best thing would be for PE to put in a bid of 150p and put holders out of our misery.
Having bought in at the 2-year average price, I've held Wimps for 5 years, reinvested all the divis and I'm still down 32% on my original investment. Even following safe, textbook investing strategy won't help you with this dog share, I'm afraid.
I'm not a judge or a medical expert, but having seen some of the the 'evidence' on which these lawsuits are (were) relying, it was pretty clear months ago that the cases had little chance of success, which is why I was happy to hold and wait. Presumably the remaining state lawsuits are relying on the same evidence (or lack thereof) and are therefore unlikely to have any greater chance of success than the dismissed Florida class action. The shorters obviously scarpered in early trading today and the sp will most likely return to its pre-spook norms over the next few weeks and months.
You win some, you lose some. It wasn't that low a probability, given the ever-present risks in this sector (fuel prices, strikes, terrorism etc). Had I not been able to get in cheap, I'd have been quite happy giving it a miss.