Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
@DarkBlue: What would be the legal situation for a Capita takeover? They have a lot of government contracts (MoD, Police, Home Office, DWP, etc.). I can't imagine that they could be sold abroad, or with massive restrictions where data is allowed to be processed.
@Corry: Sorry, I didn't check this board later yesterday. The info was from DividendMax which served me well so far to get the corner dates but I must admit I wasn't aware of the inaccuracies. So, fair comment and thanks. I'm rather new to investing in the UK so I'm grateful for every input.
I guess you received the same confusing message from DividendMax regarding the 40p?! In the RNS and the related news I read everywhere 60p like last year.
I go with hopeful August for Capita but we know that the FY23 will be no great. The December update confirmed they're in line with the analyst consensus:
£m
Adjusted revenue 2,650
Adjusted PBT 58
Adjusted EBITDA 211
Reported free cash flow post lease payments* (110)
Net debt (pre IFRS 16) (156)
Net debt (post IFRS 16) (540)
Not expecting fireworks based on that. I'd be happy to be wrong...
To be fair, I also got surprised by Ceres this morning. More than happy with it but I don't think it was common knowledge even though they said a deal is imminent (they said that about the JV for ages). Now I just need the same for Capita and I'm a happy man.
@bigpunt: I agree with you that they have to operationally deliver. I takes longer than I anticipated but I still believe they're in a position to improve their FCF in the near future. They built a basis, now they need to prove it's working. The long term contracts and the general position they're in, should allow them to become a "boring" company again, that delivers against targets.
I was talking to my brother about Capita and he asked me what I think a fair price would be. I think currently with what we know and don't know it is somewhere between 21-24p but with the potential to massively increase once the things we don't know are clarified with a positive outcome.
What currently doesn't go far enough for me are the cost saving measures. I'm not so sure they can massively increase the revenue in the near future and still stay competitive but they certainly can optimise processes and cut more of the overhead and lease costs. The dust is settling after the massive restructure and it should become more obvious what is needed and what not for the new Capita.
We kind of already know next week's statement:
"The group continues to trade in line with its expectations, delivering positive operational and financial performance and has won contracts with a total contract value (TCV) of £2.85bn year to date (2022 full year TCV: £2.59bn)."
There's a small hope that they did well enough to cover the one-offs but I don't expect too much. I just hope they deliver in 2024. We'll see...
@Joseywales: It was a long overdue step after the divestment program in my opinion. Now that the dust has settled, the overhead can be adjusted to what is necessary to run the company. The same goes for the property portfolio. Currently the costs are too high and I see it as an adjustment to the new reality.
They improved their bidding discipline and win contracts with better margins but at some point they had to look at the cost side as well.
@ Trisor: Capita runs customer service centres. They need a lot of staff, buildings and have usually quite low margins. If they manage to focus more on the IT consulting side, I would expect to see higher savings and higher margins over time but that transformation will need longer in my opinion. I hope the new CEO speeds things up. We'll see.
@passingthru: I was affected too but it's already my third time, so I kind of accept it as "it is what it is". They now invested a lot in Cyber Security in Capita. They should have spent that money way earlier to stay up to date and that's also the part I blame them for. When you leave the door open you don't have to wonder about the burglar in your living room. I remember when I bought a lock for my bike and the asked which one is the safest. The response was, they can all be picked, it just takes the thief longer. My hope is that it is not an attractive target now because the hurdles are much higher than in other companies.
I agree regarding the Software business. It would have aligned with the objective to become more of a Tech company so I couldn't really understand why it was sold.
@gotoutjustintime: Core Capita had actually decent results in my opinion. Revenue, operating profit and profit before taxes were above analyst consensus. The margins have improved, especially for Experience, and the contract win rate is much better (I hope not on cost of the margins). It were extraordinary items (hack, pension, goodwill impairment and business exit costs) of around £110M that were the reason that we are where we are (reported loss, additional debts). Pension shouldn't be an issue anymore in 2024, hack neither and with most businesses now sold the other should also not carry that much weight in the future. I don't buy any more at the moment because it already is a too big position and I have an average of 23.9p but I'm really not too worried.
After losing some of the contracts in the FY22 presentation it's great to see the win of a big contract. Regarding order book, how should I understand the following statement:
"There is no IFRS 15 transaction price (order book) for this agreement as it is a framework with no committed volumes"
Does that mean it will not appear in the forecasted revenue, just in the results?
Apparently Capita didn't win the renewal for VMO2. Another supplier will off-shore the work and 265 employees will be made redundant.
This is annoying on two levels. As CPI investor I would have liked to see the renewal and as O2 customer I really don't like off-shored call centres.