Shareholders in support services group Capita (CPI) have been left holding the UK Index wooden spoon this morning after its 2016 pre-close trading update included an unwelcome early Christmas present; another full-year profits warning. The company said last month that a Brexit inspired slowdown meant it needed to simplify the group to ensure organic growth and improved financial performance, an attempt to stem share price declines triggered by an end-Sept profits warning that saw its market cap plunge.

On a downer ever since, the shares have halved in value since the Summer and the company now expects 2016 headwinds to persist and result in ‘similar FY trading performance in 2017’. Not a good message for starters. And while a flat 2016 dividend is understandable, mere ‘hopes’ that it can be maintained in 2017 is not exactly inspiring for those requiring income and/or sitting on big capital losses. Unless you’ve been in the shares for over a decade that is.

News of the first exceptional costs (£50m) associated with the company’s reorganisation is a double-edged sword. On the one hand it signals progress with restructuring. On the other hand it costs the company and shareholders money, and means financial guidance needs revising south. And it is being anything but offset by news that a cost-cutting programme has begun as details are distinctly lacking. Furthermore disposal of the Assets Services division may be due to it being viewed as non-core, but it accounts for nearly 10% of revenues, is one of the biggest contributors to underlying profits (16%) and appears to be performing ‘well’.

With other divisions in the firing line, shrinking the group may well lead to long-term improvements in profitability, but it also means more restructuring and more exceptional costs in the quarters to come. Further government-inspired Brexit uncertainty and clients shying away may also even mean that further profits warnings can’t be excluded either.

Mike van Dulken, Head of Research, 8 Dec