Citigroup remains cautious on the turnaround story of cash-strapped outsourcing giant Capita Group PLC (LON:CPI).
The US bank kept its neutral stance on the stock but lowered the target price to 535p from 640p, saying it expects the recovery process to be lengthy.
Shareholders should be prepared for “further earnings rebasement” – what you and I would probably call profit warnings.
EPS risk remains to the downside, says new CEO
“Despite a clear cost savings narrative, weak bidding activity levels, elevated margins (relative to our perception of current BPO [business process outsourcing] available returns) and likely strategic investments under the new CEO suggest EPS risk remains to the downside,” opined Citi’s Ed Steele.
On Friday, Capita agreed a full and final settlement of £66mln with the Financial Conduct Authority (FCA) regarding the Connaught Income Series 1 Fund.
Capita Financial Managers (CFM) was the operator of the fund until September 2009, and in the FCA’s judgement, did not meet all of its regulatory requirements in the period April 2008 to September 2009.
The settlement was £29mln higher than Citi had modelled in its target price forecast.