Capita Profit Warning Spooks Investors

Extracts from an article by Michael Hewson, chief market analyst for CMC Markets.

“This morning’s announcement by government outsourcer Capita of a potential £700m rights issue, a suspension of the dividend and a profits warning had the entirely predictable response of seeing the share price nosedive by over 40% to their lowest levels since 2003. Since 2013 the company has seen its market cap drop from £6.9bn to £1.3bn now.

This is a bold move by new CEO Jonathan Lewis and the fact that he thinks that this sort of restructuring is necessary, speaks volumes to the current sentiment around the outsourcing industry in the wake of Carillion’s insolvency.” […]

“While today's share price decline is brutal, the fact that CEO Jonathan Lewis has taken steps to address the company’s weaknesses is to his credit, and while it may invite short term pain, the long term effects could well ensure the survival of the business in the long term. This is important given that Capita is the biggest supplier of local government services in the country, by some distance, according to data supplied by Tussell.”

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