Capita (CPI) puts its share administration business up for sale and downgrades its pre-tax profit guidance yet again, causing its stock price to fall 5.5% to 533p.
The FTSE 100 outsourcing group says 2016 pre-tax profit will be at least £515m. That is £20m lower than the bottom end of guidance set only nine weeks ago.
It blames further weakness in its IT Enterprise Services division and lower volumes of spending in various other divisions within Capita.
ON THE MARKET
The group intends to sell various operations that sit within its Capita Asset Services arm. The ones being put up for sale include businesses that deliver shareholder, fund, debt and banking solutions and trust and corporate services.
It will keep the UK retail banking and mortgage services business process management operations.
Capita says it will also sell a small number of other trading businesses that aren’t integral to support its technology-enabled outsourced solutions.
Overall, the bits from Capita Asset Services being put on the market account for an estimated £70m of earnings before interest, tax, depreciation and amortisation (EBITDA) and £60m of operating profit in 2016.
The other operations to be sold accounted for a further £10m of operating profit this year.
SALE PROS AND CONS
The sale, expected to complete later in 2017, will help reduce debt. Capita will incur a £50m restructuring charge.
‘The restructuring, downgrades and disposals are all effects of the underlying problems we articulated in January 2016,’ says Panmure Gordon analyst Michael Donnelly.
He believes the business is only worth 440p per share and reckons the streamlining is ‘only just the start’ of Capita’s efforts to regain its glory.
Its share price has now fallen 56% year to date and is trading even lower than the worst times during the 2008 global financial crisis which hit stock valuations around the world.
TAKEOVER TARGET?
We believe this share price weakness makes the company a takeover target - even more so as non-core businesses are sold.
One of the country’s most famous fund managers, Mark Barnett of Invesco Perpetual, has recently been buying more shares in the group.
He commented in mid November: ‘Capita has a fantastic core base of earnings and has de-rated to eight times earnings. The shares have fallen a lot further than the earnings (downgrades) imply. It has been oversold.’
