Last updated: November 28, 2012 5:32 pm

Capita outperforms on contract win

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Capita outperformed a flat London market on hopes that a recent run of contract wins would trigger earnings upgrades.

A deal with Staffordshire County Council to provide education support services was Capita’s third in a week. That put the group on track for a record year, with about £3.8bn of contracts agreed, and made management guidance for 2013 look increasingly conservative, said analysts.

Goldman Sachs estimated that Capita had already secured 5 per cent organic revenue growth for next year, against a target of 6 per cent. Morgan Stanley raised its growth forecast for 2013 to 7.3 per cent.

Analysts were encouraged that Capita had gained a foothold in UK education outsourcing – a potential £16bn market – and had established a new joint-venture operating model to win business from local councils. The shares closed up 1.2 per cent to 760p.

A rally on Wall Street carried the FTSE 100 off lows, with the index ending 3.57 points higher at 5,803.28.

Invensys jumped 27.1 per cent to 280p following a report that it would sell its rail unit to Siemens. Invensys confirmed during the closing auction that it had agreed a £1.74bn disposal and would return £625m to shareholders, equivalent to about 76p a share.

Rail, which provides about 44 per cent of Invensys’s earnings, has been the engineer’s problem division this year as a result of contract delays and spending cuts. Traders saw the sale as likely to reignite hopes that Invensys would be bought by Emerson, which abandoned a takeover approach this year.

In-line results from United Utilities were enough to lift the stock 2.6 per cent to 686.5p. The main positives, said analysts, were a reassuring outlook statement and a mention of “continued positive engagement” with regulator Ofwat on modifying its licence.

Marks and Spencer added 2.2 per cent to 387p after announcing a reduction in its pension fund deficit to £290m, from £1.3bn in 2009. Lower top-up payments would save M&S about £188m over the next four years, equivalent to 9p per share, said Barclays.

An upgrade from HSBC lifted Debenhams by 3 per cent to 116.9p. It cited improving UK consumer sentiment in combination with management’s commitment to cash returns.

Fund managers rose after UK industry data for October showed retail mutual fund flows into equities outpacing bonds for a second consecutive month, with global emerging markets funds proving the most popular. Aberdeen Asset Management gained 0.7 per cent to 331p and Jupiter Fund Management was up 2.8 per cent to 279.5p.

Standard Life rose 1.1 per cent to 314.2p after raising £500m of subordinated debt to add to an estimated £1.1bn of excess capital on the balance sheet. Investec Securities forecast the insurer to use the capital for special dividends of 20p per share this year and 10p next.

Among the fallers, packaging maker Bunzl lost 4 per cent to £10.31 after Citigroup cut forecasts to reflect a weaker US market.

British Airways owner IAG lost 0.1 per cent to 170.1p after Spanish unions announced a six-day strike in protest at plans to cut Iberia’s workforce.

Kenmare Resources lost 7.7 per cent to 30.9p after cutting its production forecast by about 10 per cent. The titanium miner blamed power disruptions caused by the upgrade to Mozambique’s transmission grid.

“The shortfall comes at a time when mineral sands prices are weakening and this may lead to some concern about Kenmare’s ability to fund phase two expansion,” said RBC. “Our view is that with about 90 per cent of the project complete, funding should not be an issue unless there is a material further fall in mineral sands prices.”

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