The little-loved outsourcing sector received a small boost on Friday as RBC Capital Markets nudged up its rating for Capita PLC (LON:CPI).
The broker has upgraded its forecasts to reflect the impact of the rights issue announced last month.
READ: Capita raises £681mln to help pay down debts
The fund-raising has gone some way to address concerns over gearing while the risk of negative news flow has now been reduced by the introduction of what RBC thinks is a “credible turnaround plan”.
As a result of the above, RBC thinks the shares should outperform in the near-term, though it cautions “this won’t be a straight line recovery”.
Based on projected earnings for 2020, a price/earnings multiple of 9.6 “looks a compelling starting point for a re-rating”, the broker said, as it increased its target price to 200p from 185p.
RBC concludes that the company is “still an enigma” but if management can deliver against both margin and cash targets, it is worth getting on board at the current price.
The shares were up 3.4p at 153.45p in mid-morning trading.