Citigroup has increased its target price for outsourcing group Capita PLC (LON:CPI) to 190p from 160p to reflect lower debt forecasts and increases in earnings estimates and a repeated a ‘buy’ rating on the stock.
In response, in mid-morning trading, Capita shares were 0.9% higher at 163.5p.
READ: Capita jumps on MoD contract win, plus £160mln sale of non-core supplier assessment business
In a note to clients, analysts at the US investment bank said its forecast for the FTSE 250-listed firm’s net debt is now around £100mln lower having raised its estimates for proceeds the Constructionline/ParkingEye disposals to £300mln from £200mln.
They said they have also upped the earnings per share estimate for the firm for 2019-2020 by around 1% following recent news of the Ministry of Defence’s military fire and rescue services contract win.
The analysts have also lowered their 2020 sector EV/EBITA discount for Capita shares to 10%-20% from 20%-30% to reflect reduced balance sheet risk following the agreed £160mln Constructionline disposal.
They concluded: “Earnings rebasement, a rebuilt balance sheet and another £105mln cost savings targeted post-2018 suggest that Capita should have reached its nadir.”