Capita Share Discussion Threads

[kingston78] 28/2/2018 22:52

Some people are so used to success that they become delusional and live in denial when they have made a mistake that they would not admit it. This includes star traders and fund managers.

There is a timeless investment rule that you average up but not average down. Some people have broken this rule. This is akin to gambling "double or quit".

The general trading environment is harsh, with so many companies going bust. Costs are rising and profit margins become thinner. A financially sound company will be able to weather the storm. That is why personally I am against share buybacks (normally taking place when the share price is at its peak and when the company is flush with cash). Management should not be fixated with ratios such as Earnings Per Share. The spare cash is there for a rainy day. This avoids the company going to tap shareholders for more capital with a rights issue at a lower share price, effectively diluting the shareholdings [buy high sell low; that is a loss making transaction for the company]

There is a box system in share trading terms when there is a clear pattern of trading ranges. The high for Capita was recently 200 p and the low 180 p. It sometimes breaks upwards through 180 but dwindles down to around 175. I interpret that 180 now has become a resistance level and there is no bottom really, as it is in uncharted territory. As regards the rights issue price I think it will be pitched at 100 to 120 p to tempt subscribers.

[abbotslynn] 28/2/2018 21:27

Keeping my opinion under wraps. 50/50

[bricktycoon] 28/2/2018 21:26

In big trouble this dog fat cats been up to there usual tricks rod and the boys been up to madness. Game over very soon feel sorry for shareholders but u have the chance know to bail at a great price sub £1 imminent

[cryptotrade] 28/2/2018 20:42

Ssr23 thinks it's a great buy at £2.

[bricktycoon] 28/2/2018 19:10

Massive crash in the morning on horrific news sell sell sell sub 1 pounds imminent

[cryptotrade] 28/2/2018 18:19

The trend is down. every small close is down from the previous close.

You never know though, tomorrow, woody may place a large set of orders to manipulate the share price up. If it works for him, fair enough.

Lets see what happens.

What will drive the price up is a fully underwritten rights issue, if the largest shareholders have covered most of it.

Failing that, it will crash and burn, however, times like these they will get the funding, unless the challenges which lay ahead are so big, the only way will be to raise money, sell certain assets, loss making ones and move from there.

Its no easy task.

Worst case, £1.55 may be retested again and if the news on strategy is very very negative with earnings outlook severely lower, it will fall below this.

[bricktycoon] 28/2/2018 13:12

This is going bust very soon. Debts out of control so is the fat cat board that have took every penny sub 1 pounds in the morning on terrible results sell sell sell

[kingston78] 28/2/2018 12:56

The five or six lead syndicate banks have lost more than £ 1 billion on the collapse of Carillion. The net debt at Capita was in the region of £1.15 billion as of 31/12/2017 in addition to owing Trade Creditors etc.

Raising £700 million by way of rights issue will still leave a massive black hole, and let's not forget the pension deficit not included in these numbers. I expect the rights issue be increased to £ 1 billion. Investors will be throwing good money after bad for the excesses of management who have mis-managed the company. They cannot fix all the problems in the short term. It is going to be a long struggle.

One should not compare the current share price with what it used to be. Circumstances are very different. The shares are very expensive without dividend and there is no visibility of growth.

If you read what is available on Carillion. It is shameful of all the former directors who have basically absolved their responsibilities. It was a reward for failure. I see a similar situation here.

[bricktycoon] 28/2/2018 12:55

Massive debts will crush this dog fat cat managing milking the funds for years games up penny share very soon get out while u can sell sell sell

[bricktycoon] 28/2/2018 12:39

Sell while u still can this is going to crash in the morning on shocking results and zero value for shareholders the debt is massive and the business is doomed the banks will walk away sell sell sell

[bricktycoon] 28/2/2018 12:36

This dogs going bust. Carillon mark 3 massive debts fat cats and government money don't mix this is going to zero very soon the banks want there money tick tock

[brain smiley] 28/2/2018 10:32

Capita website says the results date is to be announced.Which is true?

[oscar000] 28/2/2018 08:20

Final results are due 1st march tomorrow, according to the pre close statement

[bench2] 27/2/2018 21:15

Final results were announced on 2 March in 2017 , but with new CEO , big g/will write offs plus rights issue K78 is correct we may have to wait until late March for the fully audited statement . I would still hope for a few more doomsday posters and shorters to get the price down further but the stock is trading circa 6m a day down from the 15m-30m a day in early Feb and it feels as though the weak holders are out . I don't think the danger of a whipsaw of the magnitude of PFG today is on the cards when they produce their results and rights issue , however I still feel the risk return balance is in favour of a very small purchase pre the results so that you will rank for the discounted rights and excess stock . I think the traders who are short and enjoy dancing on the grave of this company may not get the leg down they are praying for . We are at max uncertainty here and these finals plus rights could mark the trough . There are still a few specialist value / recovery managers left looking for big liquid companies that have lost 90% of their peak value , although I accept this is messy and similar to Serco a long road back . So be very careful , I find the bigger the fall the more vociferous the bear posts , where were they when the stock was £13 in 2015 . Probably buying and saying nice things

[kingston78] 27/2/2018 11:29

Many companies have intangible assets. Some of these are probably more “worthy” than others if I may describe it that way.

In any case, the asset (whether tangible or intangible) is meant to be used to generate income, profit and cash flow for the company. So long as the company performs well the asset in question is worth it, otherwise the asset will be impaired in addition to its normal amortisation and depreciation charge.

The problem when it comes to a cash crunch is that Intangible assets, by nature, cannot be converted into cash easily.

There is a balance to be struck between utilising cash for investment, dividend or retention for a rainy day. You will find that some company executives take too much risk and paying too much dividend when the company is unable to do so, especially when the dividend is paid out of borrowing. Many large companies including mining companies bought back their own shares at peak cycle when they had a lot of cash, and then divested businesses in a downturn and tapped shareholders for more capital at a lower share price. They have misjudged the cycles and misused the cash resources. People think that they can access to cheap finance easily and put investors’ money at risk. They would have been more prudent if they were running their own family business using their own capital.

[massimoj] 27/2/2018 10:50

Hi Fenners - well some of the intangibles will be things like IP and proprietary systems, which do convey an advantage I think, at least to some extent. Some of these are market leading and Capita also has a scale advantage which creates barriers to entry in relation to certain contracts. Capita also benefits from sticky customer relationships, as often systems and services are designed specifically for customers and that makes it hard for those customers to up and leave to someone else (although obviously that can happen).

You are right though - people are very important to a business like Capita, but I think there are other barriers to entry and competetive advantages.

[fenners66] 27/2/2018 10:44

massimoj - your point of this business is capital light also highlights a weakness - effectively you are saying the company needs it's people to run but apart from that has no significant barriers to entry ?

Or is anyone arguing that the intangible assets include proprietary software that conveys an advantage?

If it is the former then when things get a bit tough the employees can leave - not all will be on restrictive contracts....

[massimoj] 27/2/2018 09:58

Kingston - I think your analysis is good and worth doing, but if I may, I think you are missing the wood for the trees. Capita is not a business that employs tangible assets to earn cash flows; it is a 'capital light' business model.

Yes, the balance sheet is stocked full of intangibles, but imagine if Capita had never acquired a company and had originated each business line in house; in that case, even the goodwill would not be there, and very likely the NAV would be negligable or even negative. This is common with businesses with similar business models, and further, it is worth remembering that Capita has paid out almost all of its profits in dividends instead of retaining them. If it had retianed them instead, it would have a tonne of cash, the balance sheet would look a lot better, but the business would have not performed any better. Retaining earnings flatters the balance sheet but does not reflect any increased intrinsic value to the operating business.

I think one has to be careful not to apply a traditional form of balance sheet analysis (and one which would have been very applicable to say Carillion) to a business which really does not require tangible equity to generate cash flows. After all, you would not say that Alphabet's balance sheet looks terrible, but strip out the cash and do the analysis you have done on Capita, and I think you would probably end up with that conclusion.

[kingston78] 26/2/2018 23:45

Another adverse impact on Capita's financial statements is the adoption of IFRS 15, the new accounting standard on Revenue Recognition. This will recognise lower revenue in early years of a long term contract while it will recognise more upfront cost, rather than spread more evenly as before. The result is reduced profit.

The 2017 accounts will adopt IFRS 15, with the 2016 accounts re-stated to reflect this change. The 2016 accounts would have a reduced reported profit by £146 million, but more significantly the effect on the Balance Sheet would be dramatic. Instead of a net asset of £483 million it would have a net liability of £553 million, an adverse swing of £1 billion although this would not affect cash flow.

I therefore foresee a complete meltdown in Capita's balance sheet as at 31/12/2017 under IFRS 15, especially after substantial impairment, restructuring and provisions. The Balance sheet will be in a net deficit exceeding £1 billion, even after retaining a significant portion of Intangible assets. In other words, it is technically bankrupt in the accounting sense.

There will be a battle of the company against existing lenders who are nervous of further exposure. Equity finance is the only viable option with a very heavily discounted rights issue diluting existing investors' shareholdings. Be warned!!! This is purely my own analysis, so please do your own research.

[kingston78] 26/2/2018 22:06

One accounting trick that highly indebted companies do at the year end is to delay payment to their suppliers. Whilst the overall liability has not changed its net debt (cash less borrowings) has become smaller and will be favourable in the calculation of certain financial ratios. This is to mislead the public.

However, detailed analyses of interest payable during the financial year, with an estimated or published interest rates on the borrowings, will reveal that the average net debt during a financial year is actually higher than the year-end net debt. Such analysis over a few years will probably show that average net debt has increased year-on-year, as was the situation with Carillion.

Window dressing the accounts is not illegal but the auditors should do their jobs more diligently, especially on the "going concern" issue. Rarely do auditors qualify their audit report on listed companies, and yet many of them have failed. If auditors don't do their jobs properly what is the point of having auditors in the first place?

[cryptotrade] 26/2/2018 17:53

wait for the legal cases.

[paddyfool] 26/2/2018 15:06

The punch line is the rights issue did not have a price when the agreement was made. The underwriters will not be prepared to write any agreement at anywhere near todays price. The board will be in chaos as the decision to place a rights issue is now at best in doubt. If they go low the dilution will be horrific if they go high, and by that I mean a 10-25% discount to todays price, they run the risk of not getting it away and being slaughtered in the after market. and if its seen as too hard to get a rights issue what then? The non-execs are earning their money today, rather them than me.

[kingston78] 26/2/2018 15:04

The auditors are probably auditing the financial statements for the year ended 31/12/2017. In parallel, they would be working on the rights issue.

It will take more time to audit and sign off the annual accounts this year, so I assume that the rights issue document will either be signed off at the same time as the audited accounts or be produced separately and accompanied by unaudited figures. I expect the rights issue document be circulated in late March to mid April from my experience.

On a separate note, the balance sheet has deteriorated over the years. As at 31/12/2016 it had net assets of £483 million including intangible asset of £2,754 million. The position as at 31/12/2017 would have deteriorated to the extent that the net position would have become negative , including intangibles not impaired.

Let’s think about it. Would you value a mature but troubled company to the tune of £1.2 billion when it has a negative balance sheet? That is what investors are valuing it at the current share price. The share price is too high to sustain this valuation. I expect the share price to drop significantly once the rights issue document is circulated to investors.

[fenners66] 26/2/2018 14:24

How can they announce a fully underwritten rights issue with no terms and then........ silence.

It's not stacking up for me.