The chief executive of Capita moved to reassure investors concerned about a sluggish market for outsourcing after the FTSE 100 company disclosed another decline in first-half organic sales.
Paul Pindar said the back office specialist would for the first time in three years deliver revenue improvements in 2012 without relying on acquisitions.
He made the prediction after shares in Capita, whose contracts range from enforcing TV licence fee payments to maintaining the Criminal Records Bureau, fell as much as 5.7 per cent following interim results.
The company underscored the pain that the outsourcing industry had endured when it reported a worse-than-expected 7 per cent fall in organic sales. Pretax profits rose 6.7 per cent to £141.4m in the six months to June 30 as gains from recently acquired businesses helped sales improve from £1.36bn to £1.4bn.
These included the UK public sector division of US technology services group SunGard Data Systems, which takes Capita into new areas such as vehicle tracking and recording interviews for the police. Net debt rose from £948m at the turn of the year to £1.05bn.
Graham Brown, analyst at Evolution Securities, downgraded his recommendation on the stock from “buy” to “neutral”, highlighting a “weak operating cash-flow performance”.
But Mr Pindar maintained that the company was now at an “inflexion point”. “I do think you’ll see substantial amounts of the public sector move into the private sector.”
He added that cost control as well as “offshoring” work to the company’s Indian operations, where more than 5,000 of Capita’s employees were based, had helped operating margins improve from 13.1 per cent to 13.8 per cent.
The board declared an interim dividend of 7.2p a share (6.6p), payable from diluted earnings a share of 17.77p (15.76p). Shares closed down 14p at 683p.
Shares in Capita have underperformed the FTSE 100 by 23 per cent since the 2010 general election. The prospective multiple has fallen from more than 20 times in 2009 to about 14 times forecast 2011 earnings a share of 49p, leaving them trading in line with the FTSE 350 support services index. There were signs in Thursday’s figures that Capita had put the worst behind it: £1.1bn worth of contracts and renewals were more than double the value secured in the same period a year ago. Yet a premium to peers would be hard to justify for now. The proportion of profits that Capita had converted into cash – down from 121 per cent to 93 per cent – should be a concern. Investors would also be forgiven for being cautious about the latest financial forecasts given that in February the group guided towards flat organic sales for this year. It was now predicting a 6 per cent decline.
Get alerts on Capita PLC when a new story is published