Investment Column: Capita
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Your support makes all the difference.CAPITA'S ACTIVITIES, delivering payroll services to local councils and supplying IT services to schools, are not very sexy. But the company's stock market rating is. At 61 times this year's forecast earnings, Capita suddenly looks interesting.
The rating assumes 30 per cent earnings growth in the next five years. That's a long way ahead to be forecasting, so what's the evidence it can deliver? The market is huge. Analysts estimate UK outsourcing, worth pounds 950m, could grow to pounds 7.1bn. New business helped Capita deliver a 34 per cent hike in interim operating profits.
Capita says there are economies of duration, as well as scale in its activities. So contracts granted by the public sector are getting longer, which provides a degree of earnings visibility.
The group estimates that only 10 per cent of council activities that can be outsourced have been. Councils rely on reputation when outsourcing and Capita's track record is strong. Most of its new business follows consultation with existing happy customers. In the first half, it lost no business. And the private sector is now jumping on the outsourcing bandwagon too.
Analysts expect full-year pre-tax profits of pounds 36m and earnings of 12p per share, rising to pounds 43m and 14p the year after. The rating is justified - buy into any weakness.
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