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| Capita shares hit 15-year low after shock profits warning - as it happened | |
| (about 1 hour later) | |
| Time for a recap. | |
| Just two weeks after the collapse of Carillion, outsourcer Capita has shocked the market with a hefty profit warning, a £700m cash call on shareholders and the axing of its dividend. | |
| The kitchen sink move by new chief executive Jonathan Lewis saw Capita’s shares collapse by 47.5%, wiping around £1.1bn off the company’s stock market value. Capita dominates the UK outsourcing market, and since January 2015 it has won contracts from 292 distinct public sector buyers. | |
| A link to the full announcement from Capita can be found here. | |
| The Labour party called on the government to put Capita under close review, but a spokesperson for the prime minister denied the company was another Carillion. | |
| Frank Field, chair of the Work and Pensions Committee, raised concerns about Capita’s pension deficit. | |
| Meanwhile few City analysts spotted the problems at Capita, according to their share price recommendations as collated by Reuters. But hedge funds had been shorting the shares. | |
| On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow. | |
| Ken Odeluga, market analyst at City Index, says Capita has become another lightening rod for misgivings about outsoucing and public-private finance, but agrees it is not another Carillion: | Ken Odeluga, market analyst at City Index, says Capita has become another lightening rod for misgivings about outsoucing and public-private finance, but agrees it is not another Carillion: |
| An important difference between Capita and Carillion..is that the latter’s problems are linked to under-bidding on major contracts but Capita’s originate in routine services. Capita specialises in IT solutions for banks, the National Health Service, retailers and other sectors. Its string of profit warnings over the last few years stems from clients delaying new deals after Britain’s vote to leave the European Union. Consequently, the group has been forced to undertake a painful process of simplification. It had previously depended on acquisitions as the main driver of revenue for years. | An important difference between Capita and Carillion..is that the latter’s problems are linked to under-bidding on major contracts but Capita’s originate in routine services. Capita specialises in IT solutions for banks, the National Health Service, retailers and other sectors. Its string of profit warnings over the last few years stems from clients delaying new deals after Britain’s vote to leave the European Union. Consequently, the group has been forced to undertake a painful process of simplification. It had previously depended on acquisitions as the main driver of revenue for years. |
| Another key difference between Capita and Carillion is that Capita generates lots of cash. It ended its last full year with £408m. On that basis, insolvency does not beckon for Capita. However the group is still subject to the same concerns as Carillion. Namely low- (or even zero) margin for contracts for increasingly cautious businesses amid political risk. | Another key difference between Capita and Carillion is that Capita generates lots of cash. It ended its last full year with £408m. On that basis, insolvency does not beckon for Capita. However the group is still subject to the same concerns as Carillion. Namely low- (or even zero) margin for contracts for increasingly cautious businesses amid political risk. |
| The ‘unknown’ could assail Capita as savagely as Carillion too. Most of its non-current assets were intangibles at the end of 2016 and two-thirds were ‘goodwill’ linked to acquisitions. These were the last reliable accounts of assets and liabilities before the group began a root and branch review. | The ‘unknown’ could assail Capita as savagely as Carillion too. Most of its non-current assets were intangibles at the end of 2016 and two-thirds were ‘goodwill’ linked to acquisitions. These were the last reliable accounts of assets and liabilities before the group began a root and branch review. |
| So, to be clear, Capita’s lenders will remain on side whilst it keeps generating cash and staying within leverage limits—as it has done to date. Beyond those limits, its future is uncertain. For that reason, we think stock price support will be less evident for Capita than selling interest for the foreseeable future. With 4% of shares out on loan, according to FCA data, Capita is a big short. Flimsily positive news could trigger a rush for cover, and an upward spike. The stock is down 84% in two years, near 15-year lows, and certainly oversold. However, we still expect any bounces to be sold, until the group can offer more clarity on growth and profits. | So, to be clear, Capita’s lenders will remain on side whilst it keeps generating cash and staying within leverage limits—as it has done to date. Beyond those limits, its future is uncertain. For that reason, we think stock price support will be less evident for Capita than selling interest for the foreseeable future. With 4% of shares out on loan, according to FCA data, Capita is a big short. Flimsily positive news could trigger a rush for cover, and an upward spike. The stock is down 84% in two years, near 15-year lows, and certainly oversold. However, we still expect any bounces to be sold, until the group can offer more clarity on growth and profits. |
| Capita’s share price agony is over, for today at least. | Capita’s share price agony is over, for today at least. |
| It has closed at 182.5p, down 165.3p or 47.5%. Not quite at the low of the day, when the shares hit 181.15p. | It has closed at 182.5p, down 165.3p or 47.5%. Not quite at the low of the day, when the shares hit 181.15p. |
| That means around £1.1bn has been wiped off the company’s stock market value today. | That means around £1.1bn has been wiped off the company’s stock market value today. |
| Here’s our updated story on Capita, by Angela Monaghan and Graeme Wearden: | Here’s our updated story on Capita, by Angela Monaghan and Graeme Wearden: |
| Nearly £1bn has been wiped off the value of the government contractor Capita after the company issued a shock profit warning, axed its dividend payout to shareholders and said it needed to raise £700m to put its finances back on track. | Nearly £1bn has been wiped off the value of the government contractor Capita after the company issued a shock profit warning, axed its dividend payout to shareholders and said it needed to raise £700m to put its finances back on track. |
| The grim state of Capita’s financial position emerged just two weeks after the collapse of the construction firm Carillion. | The grim state of Capita’s financial position emerged just two weeks after the collapse of the construction firm Carillion. |
| In the latest blow to the outsourcing sector, Capita’s new boss unveiled a radical overhaul of the group’s finances, and gave a damning assessment of the company, which he said had become “too complex” and lacking in discipline. | In the latest blow to the outsourcing sector, Capita’s new boss unveiled a radical overhaul of the group’s finances, and gave a damning assessment of the company, which he said had become “too complex” and lacking in discipline. |
| Jonathan Lewis, who took over as chief executive in December, said the company needed to raise up to £700m through a cash call on shareholders. He also plans to scrap dividend payouts to save £210m and sell parts of the business to raise cash. A cost-cutting programme is expected to result in job losses among the 67,000 Capita employees, 50,000 of whom are in the UK. | Jonathan Lewis, who took over as chief executive in December, said the company needed to raise up to £700m through a cash call on shareholders. He also plans to scrap dividend payouts to save £210m and sell parts of the business to raise cash. A cost-cutting programme is expected to result in job losses among the 67,000 Capita employees, 50,000 of whom are in the UK. |
| The full report is here: | The full report is here: |
| Earlier this month, Capita’s new boss met City analysts and seems to have made a good impression. He put forward his plan to streamline the business, but there does not appear to have been much talk about a fundraising, judging from what was reported afterwards. In a hold note on January 18, Stifel analysts said: | Earlier this month, Capita’s new boss met City analysts and seems to have made a good impression. He put forward his plan to streamline the business, but there does not appear to have been much talk about a fundraising, judging from what was reported afterwards. In a hold note on January 18, Stifel analysts said: |
| The company hosted an informal meet & greet with new CEO Jon Lewis last night. First impressions are positive. It is still early days in Mr Lewis’s tenure and there is plenty of strategic work for him and his team to undertake but he gave some strong hints regarding the direction of travel: a simpler, more agile business, focused on depth of expertise as opposed to breadth. He signalled core ares of interest could be customer management, HR and software services. Disposals will happen and in time international expansion will be pursued. No doubt, Mr Lewis’s view of what Capita should stand for will evolve as he works his way though the business but as a starting point we welcome any attempts to make the business more streamlined, less opaque and by extension easier to understand. | The company hosted an informal meet & greet with new CEO Jon Lewis last night. First impressions are positive. It is still early days in Mr Lewis’s tenure and there is plenty of strategic work for him and his team to undertake but he gave some strong hints regarding the direction of travel: a simpler, more agile business, focused on depth of expertise as opposed to breadth. He signalled core ares of interest could be customer management, HR and software services. Disposals will happen and in time international expansion will be pursued. No doubt, Mr Lewis’s view of what Capita should stand for will evolve as he works his way though the business but as a starting point we welcome any attempts to make the business more streamlined, less opaque and by extension easier to understand. |
| ... The new CEO has sketched out some initial thoughts as to the direction of travel which is helpful but we need to have more information on the future shape of the group to take a view on the potential value that can be created for shareholders. | ... The new CEO has sketched out some initial thoughts as to the direction of travel which is helpful but we need to have more information on the future shape of the group to take a view on the potential value that can be created for shareholders. |
| Numis was so enthused it issued a buy note after the meeting: | Numis was so enthused it issued a buy note after the meeting: |
| We had a positive initial meeting with new CEO, Jonathan Lewis. It is easy to be critical of the past, but his observations on some of the structural and cultural issues at Capita highlighted some fundamental problems, but also material opportunities. We were encouraged by his comments on the need for great focus, cost reductions (whilst also re-investing for growth), and need to focus on cash. | We had a positive initial meeting with new CEO, Jonathan Lewis. It is easy to be critical of the past, but his observations on some of the structural and cultural issues at Capita highlighted some fundamental problems, but also material opportunities. We were encouraged by his comments on the need for great focus, cost reductions (whilst also re-investing for growth), and need to focus on cash. |
| No recovery for Capita. Its shares are now down 46% at 187p. | No recovery for Capita. Its shares are now down 46% at 187p. |
| Just got this email. An unmissable opportunity for outsourcers such as, erm, Capita. pic.twitter.com/9NO2zFue8s | Just got this email. An unmissable opportunity for outsourcers such as, erm, Capita. pic.twitter.com/9NO2zFue8s |
| More from the City on Capita. Analyst Kean Marden at Jefferies called today’s announcement a “kitchen-sink” job by the new chief executive: | More from the City on Capita. Analyst Kean Marden at Jefferies called today’s announcement a “kitchen-sink” job by the new chief executive: |
| Jon Lewis arrived at Capita last September and has issued a stark initial assessment of the company’s shortcomings this morning. | Jon Lewis arrived at Capita last September and has issued a stark initial assessment of the company’s shortcomings this morning. |
| Our initial calculations suggest that 2018 full year consensus earnings per share estimates, once analysts have included rights issue and bonus factor adjustments, could decline by around 40% today. In the medium term, cost savings should help (we think £85-90m could be achievable) but the revenue environment remains lacklustre. | Our initial calculations suggest that 2018 full year consensus earnings per share estimates, once analysts have included rights issue and bonus factor adjustments, could decline by around 40% today. In the medium term, cost savings should help (we think £85-90m could be achievable) but the revenue environment remains lacklustre. |
| Peel Hunt’s Christopher Bamberry said: | Peel Hunt’s Christopher Bamberry said: |
| The focusing of the group on a smaller number of better competitively positioned business, with a strengthened balance sheet, allowing appropriate levels of investment, are welcome steps in the right direction. 2018 pretax profits expectations have been significantly reduced. | The focusing of the group on a smaller number of better competitively positioned business, with a strengthened balance sheet, allowing appropriate levels of investment, are welcome steps in the right direction. 2018 pretax profits expectations have been significantly reduced. |
| Rory McKenzie at UBS said: | Rory McKenzie at UBS said: |
| With a new chief executive in place, 2018 was always going to be a significant transition year for Capita – todays’ announcement however outlines the scale of the challenges ahead... | With a new chief executive in place, 2018 was always going to be a significant transition year for Capita – todays’ announcement however outlines the scale of the challenges ahead... |
| Capita has i) guided to a 25-33% downgrade to 2018 consensus; ii) suspended the dividend (we think the market was braced for some form of cut already), iii) announced a rights issue planned for 2018 (underwriting in place for up to £700m, i.e up to 30% of pre today’s market cap) and iv) announced a non-core disposal programme over the next 2yrs. Capita aims to come back with a full strategic review in 2018 with more details, but for now the pressures look challenging. Consensus EPS for FY18 could fall around 30-50% including the impact of the rights issue. | Capita has i) guided to a 25-33% downgrade to 2018 consensus; ii) suspended the dividend (we think the market was braced for some form of cut already), iii) announced a rights issue planned for 2018 (underwriting in place for up to £700m, i.e up to 30% of pre today’s market cap) and iv) announced a non-core disposal programme over the next 2yrs. Capita aims to come back with a full strategic review in 2018 with more details, but for now the pressures look challenging. Consensus EPS for FY18 could fall around 30-50% including the impact of the rights issue. |
| Theresa May’s spokesman is trying to calm fears that Capita could be heading the same way as Carillion, the outsourcing firm which fell into liquidation two week ago. | Theresa May’s spokesman is trying to calm fears that Capita could be heading the same way as Carillion, the outsourcing firm which fell into liquidation two week ago. |
| Reuters has the details: | Reuters has the details: |
| The British government monitors the financial health of all its strategic suppliers and does not believe that any, including Capita, are in a comparable position to Carillion, a spokesman for Prime Minister Theresa May said on Wednesday. | The British government monitors the financial health of all its strategic suppliers and does not believe that any, including Capita, are in a comparable position to Carillion, a spokesman for Prime Minister Theresa May said on Wednesday. |
| “Broadly we monitor the financial health of all our strategic suppliers, including Capita, and we are in regular discussions with them regarding their financial position,” the spokesman told reporters, after Capita shares fell sharply on news of a restructuring. “And (I would like) to emphasise we do not believe that any of our strategic suppliers including Capita are in a comparable position to Carillion.” | “Broadly we monitor the financial health of all our strategic suppliers, including Capita, and we are in regular discussions with them regarding their financial position,” the spokesman told reporters, after Capita shares fell sharply on news of a restructuring. “And (I would like) to emphasise we do not believe that any of our strategic suppliers including Capita are in a comparable position to Carillion.” |
| The Guardian’s daily Business Today email gives you the lowdown on Capita, Carillion, VW and much more. | The Guardian’s daily Business Today email gives you the lowdown on Capita, Carillion, VW and much more. |
| Besides the key news headlines that you’d expect, there’s an at-a-glance agenda of the day’s main events, insightful opinion pieces and a quality feature to sink your teeth into each day. | Besides the key news headlines that you’d expect, there’s an at-a-glance agenda of the day’s main events, insightful opinion pieces and a quality feature to sink your teeth into each day. |
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| Here’s further confirmation of Capita’s grip on the outsourcing market: | Here’s further confirmation of Capita’s grip on the outsourcing market: |
| Since January 2015, #Capita has won contracts from 292 distinct public sector buyers - more buyers than any other supplier pic.twitter.com/a5kKQIx53V | Since January 2015, #Capita has won contracts from 292 distinct public sector buyers - more buyers than any other supplier pic.twitter.com/a5kKQIx53V |
| This list shows how Capita holds a wide range of public sector contracts: | This list shows how Capita holds a wide range of public sector contracts: |
| Runs government helplines for: • The state pension • Jobseeker's Allowance • National Insurance number allocation • Winter fuel allowance | Runs government helplines for: • The state pension • Jobseeker's Allowance • National Insurance number allocation • Winter fuel allowance |
| Transport: • Operates London congestion charge • Manages wifi services for Transport for London, including free public access on London Underground • Provides IT infrastructure services for UK air traffic control • Planning for 10km of cycling routes in Salford | Transport: • Operates London congestion charge • Manages wifi services for Transport for London, including free public access on London Underground • Provides IT infrastructure services for UK air traffic control • Planning for 10km of cycling routes in Salford |
| NHS/health: • Provider of blood transfusion systems to some hospitals • Manages communications between the NHS and its suppliers, vetting firms on data security standards • Provides online payment systems to some NHS trusts | NHS/health: • Provider of blood transfusion systems to some hospitals • Manages communications between the NHS and its suppliers, vetting firms on data security standards • Provides online payment systems to some NHS trusts |
| Pensions: • Runs the teachers’ pensions scheme • Works on behalf of the pensions regulator on the automatic enrolment of staff into company pension schemes | Pensions: • Runs the teachers’ pensions scheme • Works on behalf of the pensions regulator on the automatic enrolment of staff into company pension schemes |
| Other: • Army recruitment • Electronic tagging of offenders in England and Wales • Operates the Gas Safe register for the Health and Safety Executive • Carries out disability workplace assessments • Operates the BBC licence fee | Other: • Army recruitment • Electronic tagging of offenders in England and Wales • Operates the Gas Safe register for the Health and Safety Executive • Carries out disability workplace assessments • Operates the BBC licence fee |