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FTSE gains ground despite mining slump as Capita climbs

Discussion in 'Market News' started by Lily, May 10, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Outsourcing group lifted by trading update to lead market higher

    Capita is leading the market higher after an upbeat trading statement from the outsourcing group.

    Ahead of its annual meeting it said it had made a solid start to the year and was confident it would grow revenues by at least 4% this year. It has won £4580m worth of contracts, including Volkswagen and Debenhams, although some decisions have been taking longer than expected to come through.

    With £458m aggregate contract wins year to date (versus £1,200m this time last year, and £1,800m in 2015 overall) Capita has made a slower start as expected. It notes that some pipeline decisions have been slower than anticipated, but still expects most to convert this year. It sounds like the ‘transactional’ businesses and client expansion are picking up some of the slack.

    Capita has published an annual meeting statement and trading update today maintaining its 4% organic growth target and highlighting its confidence in the structural growth opportunities. However, we think that year to date contract wins is on the low side and acquisition spend is also surprisingly light. We do not anticipate making any changes to our forecasts and remain sellers of the stock.

    Although the statement contains little new information, 2016 estimated organic revenue growth visibility has improved from 0.7% in February to 2% currently, which is slightly better than anticipated. We believe Capita’s valuation (the bottom of its 15-year range) offers an attractive entry point for a long duration compounder.

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