The outsourcing group's shares have risen 40% in a year, but analysts now see technology as a structural threat to its core business.
Deutsche Bank has downgraded Capita PLC (LSE:CPI), the London-listed outsourcing group, from 'buy' to 'hold' and cut its price target by a quarter to 300p from 405p, citing growing concern that artificial intelligence is eroding the long-term revenue outlook for its contact centre operations.
The shares fell 4% to 278p.
Analyst David Brockton said technological progress had historically proved deflationary for Capita's business, and that dynamic was becoming increasingly evident in contact centres, where AI was lowering the cost to serve customers, intensifying competition and encouraging clients to bring operations back in-house.
The downgrade came despite Capita's shares gaining around 40% over the past year, buoyed by tangible operational progress under new management, including improved customer service scores, stronger order intake, delivery of cost savings and an agreement to exit loss-making closed book life and pensions contracts.
Brockton said his earnings-per-share forecast for 2026 had been cut by 11%, with free cash flow expectations reduced from £16 million to £2 million, inclusive of contract exits.
The analyst acknowledged that management had moved to embrace AI solutions both to improve internal performance and to offer productivity gains to customers.
However, he said the more pressing concern was not the efficiency of Capita's cost structure in contact centres but the trajectory of its revenues, with the structural threat from automation increasingly hard to ignore.