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Capita PLC

Capita plans asset sales as it cuts its profit forecast once again

The group said it now expects underlying pre-tax profit before tax to be at least £515mln, well below a forecast made in September of between £535mln and £555mln.

London traffic congestion
Capita, which operates London’s Congestion Charge, said it would now sell the majority of its Capita Asset Services division

Capita PLC (LON:CPI) has cut its full-year profit forecast for the second time in three months, with the Brexit vote continuing to take a toll on outsourcers, and said it plans to sell a raft of assets in a bid shore up its tattered balance sheet.

The group, which recruits for the army and NHS, said it now expects underlying pre-tax profit before tax to be at least £515mln, well below a forecast made in September of between £535mln and £555mln.

That September guidance was already more than 10% down on the £614mln it had previously forecast.

READ: Capita's September warning

Capita shares, which have halved in value since the September profit warning, remained at the top of the FTSE 100 fallers board at midday, off nearly 6%, or 53p at 511p, hitting a 10-year low.

Capita, which also operates London’s Congestion Charge, said it would now sell the majority of its Capita Asset Services division and a number of other businesses to help it out of the current hole.

In a client note today, analysts at Shore Capital Markets said: “In total, Capita is to exit an estimated £70m of EBIT for FY2017F (c12% of next year’s forecast level), this likely pushing our EPS forecasts down further for next year.”

They added: ”The cost of restructuring is put at c£50m at present, this is less than we expected (in our model £100m), but we cannot rule out further, higher, charges next year.”
The analysts concluded: “We believe that the proposed sale reflects the evident balance sheet pressure.”

The company first announced plans for a major review of its operations and strategy in October, and last month revealed initial plans to overhaul its structure.

Brexit headwinds

Outsourcers have struggled since June’s Brexit vote as clients have delayed making decisions on investment and contracts due to the uncertainty.

Capita chief executive, Andy Parker, said: “I am confident that the markets Capita addresses offer long-term structural growth. We are, however, currently facing some near-term head-winds, which continue to make 2016 a challenging year and will affect trading performance in the first half of 2017.”

In some good news for investors, however, the group said it expects to recommend a total dividend for the current year of 31.7p, unchanged on 2015, and it hopes to maintain that pay-out in 2017.

Capita is predominantly UK-based, unlike bigger rivals such as G4S PLC (LON:GFS) and Serco PLC (LON:SRP) that have been sheltered to a large degree from Brexit-related fallout by their bigger geographical footprint.

Shares in Serco were up 3%, or 4.3p to 141.6p at lunchtime, while G4S shares were flat. 

 - updates with broker comment, share prices - 

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Price: £1.46

Market: LSE
Market Cap: £2.44 billion
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