Capita Share Discussion Threads

[hotshot6] 18/10/2017 12:25

hugh sells just gone through anyone know who's sold

[thewheeliedealer] 16/10/2017 22:03

Hi all, pretty much every weekend I do a Blog about Index Charts and stuff and also look at a few Stocks. Someone flagged CPI to me the other day and I think it looks interesting - I have scribbled some thoughts on the business situation and also included several Charts which may be of use. You can see them here:



I hope it helps, cheers, WD

@wheeliedealer

[ilovefrogs] 11/10/2017 16:15

Sophia - agreed. Clearly risk here, but now we have a new management team who doesn't need to worry about a historical legacy, and who recognizes the problem in front of them. The core underlying long term growth drivers remain in place, whilst the stock price is discounting poor implementation from here. FCF looks fine, and debt is falling. I believe the risks from here are to the upside.

[sophia1982] 11/10/2017 10:34

Walbrock,

thank you for your intelligent analysis.
The question is: isn't this in the price?

Capita's ROCE in a bad semestre was still 15%, cash conversion always very good, etc.

Market hit by Brexit, but Capita is the n. 1 so should survive in any case.

If 2H is like 1H, this stock trades at 10 times FCF.

[60000 muppets] 06/10/2017 10:57

This is a good entry point.

[walbrock82] 06/10/2017 10:37

Capita’s share price decline can be summed up by falling employee productivity and out of control net borrowings growth. But there are other factors, such as:

1). Exceptional Charges; - The reason why reported EPS collapsed from 35.5 pence in 2014 to 5.5 pence in 2016 was the write-down of contracts and assets. That level of write-downs has totalled £740m in the past two-and-a-half-years.

2). Not fulfilling contracts obligations; - The London congestion charge cost Capita £25m, as they are unable to meet a deadline to install a system. There are delays in registering qualified GPs in the NHS, which resulted in GPs being sent home after getting hired.

3). Contract delays due to governmental budgetary constraints; - That is due to the delay in military contracts and missing out on a large pensions deal.

4). Falling profits led to questions over goodwill valuation; -Goodwill makes up a good chunk of total assets. It amounts to £2.15bn or 30% of total assets. In the event of falling profits, there is pressure on management to write-down Capita’s goodwill to reflect reality.

The demise of Capita’s share price is fully researched

And, if you happen to have an investment professional advising you about an “employee-based” company, then ask him/her these questions:

-Is each employee generating a greater level of sales each year? You can use the period from 2007 to today.

-Has the “company” employee generate greater profits each year?
-Are total liabilities outpacing sales growth?

-How much does goodwill accounts for total assets?

The purpose of asking these questions are:

-To give an impression to your adviser that you did your homework.
-To make them think twice about taking you for a mug.
-To display your analytical intelligence when it comes to stock research.

[walbrock82] 05/10/2017 17:01

Capita declining share price didn’t happen because of problems in the past few years, but occur much earlier (you are talking about the time during the financial crisis). By using secondary metrics like Sales per employee, you would have noticed that productivity per staff has stalled and was experiencing a gradual decline.

See here: -

Another interesting observation, which could disrupt the way we analysis market valuation is to pick the most important financial/non-financial data. For Capita, it is their employees.

So, what you do is divide the employee numbers by market capitalisation to get market capitalisation per employee. Then you divide employee numbers by normalised profits to get normalised profit per employee.
Next, divide Market Capitalisation per employee over Normalised profit per employee to get multiple. Much like the PE ratio, a low number signals cheap valuation and vice-versa.

You measure that against Capita’s share price to achieve this correlation.

This gradual internal inefficiency has led to their share price decline.

[walbrock82] 04/10/2017 16:19

When 447% sales growth (since 2002) doesn’t look too impressive
and is a big contributor to the decline of their share price.

[sophia1982] 21/9/2017 11:08

The market has gone from valuing this company with extreme optimism at over 8bn to extreme pessimism to less than 4bn in less than 2 years.

In a very difficult period, CPI has made 179 of FCF.
(Tangible assets are not a usefuul indicator for a service co).

Net debt should be less than 900m at end of year and leverage quite manageable. I did not like the sale of Asset Services but the possibility of a dilutive rights issue has been basically removed for the time being.

This is the market leader in UK in a market with tremendous potential and has a good set of capital allocation rules which will become even stricter in the future.

I do not quite understand the market reaction... especially looking at the valuation of the peers.

[bakunin] 21/9/2017 09:53

Got to look forward.
What are the capabilities of the new management?
Getting a bit of youth involved, it seemed to me.
Which I think will be good. Energy and desire to just do.

[bigbigdave] 21/9/2017 09:47

The glory days of Rod and Paul well in the past.

[bakunin] 21/9/2017 09:35

bookbroker
That's a fair point, especially the debt (which the division sale helps resolve).
I wouldn't expect tangible assets other than cash in an IP-focused company.
Their assets are the knowledge of all of their people in the design of systems and resolution of problems.
It has been a typical, badly-managed UK company.
With the right management, they ought to generate a lot of cash.
There is the crux, UK companies are almost all badly managed.
They are only successful by default (happen to be in high-margin areas).
Capita's US equivalents are doing very nicely at the moment, with similar B/S profiles (as far as I recollect from previous research).

[bookbroker] 21/9/2017 09:28

That's what the market is looking at Bak., this co. has very little in the way of tangible assets, huge intangibles, high debt and pedestrian growth, it will be overcome by the new order and newer technology with very little to back the share price!

[bakunin] 21/9/2017 09:25

bookbroker
But, they were low-growth.
There is going to be a world of opportunity in tech land in the coming years.
Government etc will need to keep apace with IoT/cloud etc etc etc
Lots of transformation projects in the BPO world.
They just need to be managed well.
Mind you, that is easier said than done with the general quality of management in the UK.

[tim 3] 21/9/2017 09:22

wow looking like we might be going back down to 500.

[bookbroker] 21/9/2017 08:27

It's the largest contributor to profit, what has this co. got beyond, the results were awful, no CEO, and still a high debt level!

[paddyfool] 21/9/2017 08:15

That's hardly new knews!

[bookbroker] 21/9/2017 08:13

Market not impressed, selling off the Crown Jewels will not make this company any stronger!

[sophia1982] 21/9/2017 07:40

Looks quite undervalued vs peers. Any comments on this?

[sophia1982] 21/9/2017 07:35

Very decent results for a company which is still without CEO.
More needs will need to be done on the bidding side, but the business has stabilized.

[harvester] 21/9/2017 07:25

On first reading & without deeper analysis half-year results published today look alright.I expect a positive market response.

[andysaw] 26/6/2017 06:54

Capita sells asset services for more than expected price £888. Debt-to-equity target will be 1.8 instead of 2-2.5 after completing the selling process.Birmingham contract is also revised to run until 2021.

[playthebull] 21/6/2017 15:39

Nice one HSBC! Keep up the good work.