Capita shares plummet 40% on firm's 'lack of operational discipline'

01 February, 2018, 00:29 | Author: Elaine Woods
  • Outsourcer Capita to launch £700m rights issue and scrap dividend as it warns on profits

Around 1500 GMT in London, Capita shares traded down 43.37 percent at 196.95 pence, compared with the closing value on Tuesday.

Like Carillion, Capita provides vital services in Britain from running the system which pays National Health Service dentists to hospital triage support, collecting the congestion charge for driving in central London and helping retailers manage online shopping sites.

It plans to raise £700mln from shareholders later this year and will suspend its dividend until it generates a "sustainable free cash flow". [It] needs to change its approach.

But a Downing Street spokesman dismissed such suggestions, insisting that the government does "not believe that any of our strategic suppliers including Capita are in a comparable position to Carillion", which did much outsourcing for the United Kingdom government.

"Following the recent demise of Carillion, and with Capita also highly exposed to government contracts (Army on-boarding, Teachers pensions, Pensions regulator, HSE, DWP, Cabinet office, MoJ and many more), investors will be quite rightly wondering whether the flood gates are steadily opening to cast light on the risks of government reliance on public-private partnership", Mike Van Dulken, head of research at Accendo Markets said in an email.

Shares in Capita have fell by over 40% this morning after the outsourcing firm announced it had suspended its dividend and initiated a multi-year transformation plan..

Capita, meanwhile, did not specify which contracts were problematic but pointed to a lower number of new contracts being awarded for smaller amounts, in a more sluggish business operating environment.

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Its Real Estate and Infrastructure division carries out a wide range of activities, from design to facilities management, and it runs the Constructionline vetting service for those wishing to employ a contractor.

Neil Wilson, senior analyst at ETX, said signs of problems had been building at the firm, including the loss of "a lucrative and profitable contract with the Prudential" in January.

"Capita has underinvested in the business and there has been too much emphasis on acquisitions to drive growth", he said.

Capita said underlying profits for 2018 would be between £270m and £300m, falling short of analysts' predicted £400m. Mr Lewis aims to bring the leverage ratio down to, between 1.0 and 2.0 times net debt to EBITDA, and it is now in the region of 2.9.

Jonathan Lewis, who took over the chief executive role in December, accompanied today's profit warning with a root-and-branch critique of the company's performance.

Capita said it was undertaking a triennial review of its pension scheme and expected its pension deficit to come in below the £381m announced last summer.

"We will seek to reduce the remaining deficit as a priority", it said.

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