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Capita (CPI) is today’s standout UK Index stock, shares up over 12% thanks to better than expected recent trading. This puts management in the enviable position of being able to upgrade March’s forecast for H1 performance to “no worse than” the second half of 2016 (a period chock full of profits warnings; shares at 10yr low) as opposed to “weaker than”. A positive profits warning if you like, despite higher costs and excluding write-downs and disposals.
Add to this an outlook for steadily improving profitability in the second half and beyond thanks to successful implementation of initiatives that began last year to slim the group, coupled with reduced attrition rates, and the investor response is understandable.
This represents a very solid improvement since March when FY results disappointed with pre-tax profits -33% due to myriad one-off costs and less contract wins. 2016 was after all a proper annus horribilis.
Progress on the shortlist for a new CEO is also welcome, as is a smooth start for new contracts with Mobilcom-Debitel and Three UK, £300m in new contract wins and a £3.8bn contract pipeline.
The shares have broken out to trade fresh 2017 highs today, making a bullish test of a 200-day moving average not traded above since early December 2015. Is this the turnaround we’ve all been waiting for?
Mike van Dulken, Head of Research, 13 June 2017
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
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