Even when they were coining it, outsourcing firms were not much loved and now it looks like investor sentiment is also turning sour.
Broker Jefferies admitted today it got it wrong on Capita PLC (LON:CPI).
It has downgraded the outsourcing firm to ‘hold’ following last week’s profit warning.
The group’s working capital looks weak, despite lower revenue, and the pipeline is thinning out, Jefferies notes.
Proposed asset disposals would beef up the balance sheet, but carry execution risk, the broker argues.
“Management are under considerable pressure, and we are concerned about the number and public profile of underperforming contracts,” the City firm confessed.
“Until visibility improves we downgrade from Buy to Hold and will revisit subject to working capital, bid pipeline and disposal momentum over the next 3-6 months,” Jefferies said.
The price target was hacked from 815p to 465p.
Peel Hunt has also stuck the boot into Capita, cutting its price target from 657p to 479p.
The shares look cheap, trading on less than eight times projected earnings.
The dividend yield, at 7% or so, also looks enticing.
Nevertheless, the broker says it would remain wary of investing in Capita.