Capita share price: 4 things to watch out for in its 2018 results

The outsourcing company had a challenging 2018 in the wake of Carillion, but investors are interested to see what progress has been made in its full-year results on Thursday.

Capita Source: Bloomberg

Capita has had a challenging 12 months of trading in 2018, with the company struggling to turn itself around in the wake Carillion’s collapse in January amid a myriad of headwinds.

Investors will be looking to see if the company’s new management has made any headway in its full-year results on Thursday, after Capita was forced to issue two profit warnings over the course of last year, with its share price still hovering dangerously close to a record low.

Capita earnings guidance

Capita is expected to report earnings of 13.2p a share, down 52.5% over the year, with revenues forecasted to fall by as much as 5% to £3.9 billion in its full-year 2018 results.

It will be interesting to see if the company is able to exceed expectations with Capita managing to beat estimates for earnings in five of its last eight trading updates.

New C-Suite leadership

Investors will be keen to see how the company’s new leadership team is handling the pressure at Capita, with CEO Jonathan Lewis taking the helm in December 2017 and CFO Patrick Butcher being appointed to the board as early as January.

A vote of confidence in Capita’s new management came from Barclays, who recently restarted its coverage of the outsourcing services group with an ‘overweight’ rating and 160p target.

‘Capita is investable for the first time in over five years,’ the bank said in a note to investors.

Barclays went on to say that it felt that leadership at the company had been ‘upgraded’ and that ‘attention is shifting from firefighting to self-help story delivery’.

Cost-cutting progress

In the wake of Carillion there was renewed government and investor focus on members of the outsourcing industry and it quickly became apparent that Capita had troubles of its own, forcing the company to embark on a major restructuring initiative aimed at saving more than £175 million by the end of 2020.

Unsurprisingly, in April of last year, the company’s management was quick to announce that it would have to make a ‘modest’ reduction in headcount to reduce expenditure and a £700 million rights issue was followed by a slow disposal of non-core assets.

Investors will be eager to see the cost-cutting measures reflected in the company’s balance sheet and see what more needs to be done in this area to hit its target by the end of 2020.

Life after Carillion

Capita itself warned on profits in January 2018, shortly after the collapse of rival Carillion, only to have to issue a second warning to shareholders in August after the company’s profits fell by as much as 60% in the H1.

The latter half of last year provided little in the way of reprieve, however; with the company coming under heavy fire after it failed to send some 48,000 letters to women telling them of cervical screening dates or containing test results.

After all that, it is reasonable to believe that the worst is firmly behind Capita, with the company having success in winning new business of late and its full-year results providing an opportunity for its new leadership team to plot a course for its future rather than lamenting about the past.


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