Capita PLC (LSE:CPI) shares rose 4% on Monday morning after RBC upgraded the outsourcing group, arguing that the balance of risk and reward now looks attractive.
The bank, which lifted its rating to 'outperform' and raised its price target from 17p to 20p, said new details on Capita’s Experience division had revealed a stronger-than-expected performance from its pensions business, which was delivering margins of nearly 16%, while the contact centre unit is running at a loss.
RBC said this mix has positive implications for valuation, especially as the company edges closer to turning free cash flow positive in 2026.
After years of restructuring and disposals, Capita now has two core divisions – Public Services and Experience – and is aiming for 6–8% operating margins over the medium term.
While revenue growth remains slow, the company has secured a 92% renewal rate on contracts and grown its pipeline to £11.1bn, with much of that underpinned by tech and AI-related opportunities.
RBC sees room for margin improvement and stronger cash generation as legacy issues fade and believes even its cautious sum-of-the-parts valuation supports the upgraded share price target.
Capita, which trades on a free cash flow yield of over 10% for 2026, remains well below the value RBC sees in its longer-term forecasts.
In morning trading, the stock was up 0.53p at 14.25p.