RE: So much for leaving 16p behind18 Sep 2023 15:36
Here is the investment case for CPI (copied from a post on the ADVFN board)
There are a number of one offs that should dissapear from cashflow during H2 2023 or H1 2024, obviously there will be new one offs, but the savings are substantial:
Pension defecit is now eliminated and in surplus, saving £15 million per half year in payments.
Cyber Incident has more costs to run, but hopefully the chance to offset that with the eventual insurance payout by next results. A one off in any case.
Interest payments should decrease with the continued repayment of debt.
Net capital lease payments should also improve cashflow and are hopefully getting boost from asset sales. I would imagine this will be a longer term headwind, buy will see incremental improvement in lease liabilities. I see this as the long tail of the transformation.
Working capital rocketed vs H1 2022, mainly as a result of trade receivables, much of this was non-cash adjustments. I would assume most of this is a timing issue and not something to be overly concerned about.
I'm not saying all of this should be discounted, other things "one offs" are sure to take the place of some of it. But there are an unusually large number of (understandable from a PI point of view) one off issues that affected cashflow in H1, much of it will be gone in H1 24, possibly by the end of year.
Combine this with £40 million in cost savings and accelerating revenue growth and I see some healthy comparisons over the next few years. I still think it will be 2024 before we see any announcements on dividends, by which time cashflow should well in to positive territory so long as we continue along the same trajectory.
Capita claim they intend to double the EBITD margin, EBITDA is currently £115 million, with amortisation coming in at £15 milion, so 100 million of EBITD and a margin something around 7%. The target then is for an EBIT number of £200 million excluding growth. I'm not sure how a company generating £200 million in EBITD retains a market cap of £300 million. I'm not even sure how a company generating £100 million of EBITD with a clear path of improvement can remain on a £300 million market cap.
The book-to-bill ratio is the ratio of orders received to the amount billed for a specific period, Capita maintained that ratio at '1', in other words they were renewing the business they completed but not meaningfully increasing it. Last year the number cam in at 1.2. That ratio currently stands at 1.5, probably an unsustainable number, but it's a good indicator of near term growth. I'm hopeful we'll see us around 1.2 by year end.
The investment thesis is not that Capita are perfect now, it is that the groundwork has been done and that Tim Weller (FD) knows alot more about current Capita financials than we do !!
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