Jefferies International believes that although struggling outsourcer Capita PLC (LON:CPI) is ”deeply unloved”, the risk/reward for the group is slowly improving, leading the broker to upgrade its rating for the stock.
In a note to clients, following the FTSE 250-listed firm’s recent trading update, the US broker raised its rating on Capita to ‘buy’ from ‘hold’ after boosting their target price to 750p from 465p.
In early trading this morning, having posted a 15% share price leap after its AGM update on June 13, Capita shares were 3.6%, or 23.5p higher at 669.0p.
Jefferies analysts said: “There is evidence of change under the Chairman, a full price for the CAS (Capital Asset Services) disposal would derisk the balance sheet, IFRS15 is benign, and equity markets seem willing to back management turnarounds at a very early stage.”
They added: “With the UK in perpetual political turmoil, trading will remain difficult but lowly valuation multiples underappreciate self-help.“
In its recent trading update, Capita said its overall trading in the year to date has been in line with expectations, and added that it has also drawn up a shortlist of “strong candidates” to replace its departing chief executive, Andy Parker.
The group announced in March that Parker is to depart in the autumn, at the same time as its reported a 33% drop 2016 pre-tax profit to £74.8mln, impacted by weak revenues in both its recruitment and IT services businesses, plus a £50mln write-down of assets.
Capita also lost its blue chip status in March, being demoted from the FTSE 100 index.