Capita Group Plc Ord 2 1/15p Shares (CPI)

Company overview

The Group's core activity is the provision of professional support services focusing on business process outsourcing solutions.

HL Comment (24 July 2008)

The Group's core activity is the provision of professional support services, focusing on business process outsourcing (BPO) solutions. The group is the number one provider of so called ‘Business Process Outsourcing’ solutions in the UK. The company’s operating of London’s congesting charging scheme and the running of the BBC’s TV license administration service are it best known contracts. The group’s back office services are provided across a whole range of fields including: IT and software services, frontline customer contact operations, human resources, finance, treasury and shareholder services, management and property consultancy or a combination of these services. Other specialist services also include highway services (congestion charging) and life and pension administration services (including SIPP schemes). The customer base is approximately split 50:50 between private and public sectors.

The recently announced half year results (24July08) again proved broadly positive. Pre-tax profits before exceptional items increased by 16pc to £120.2m, whilst turnover increased by 20pc to £1.18 billion pounds from £985m. Profit margins have generally been trending upwards over recent years, buoyed by the group’s move to export work to lower wage economies such as India. Furthermore, during the year to date, the company continued to supplement organic growth with acquired growth, as the group spent a total of £128.8m on eight acquisitions. Finally, management remained upbeat with regards to the outlook, noting that the second half had started well – this confidence was underlined by a 20pc increase in the half year dividend payment.

Acting for negative investor concerns, competition across the industry continues to grow, with a number of smaller companies entering the fray. In addition, the valuation continues to cause some analysts concern, although others argue that relatively dependable growth comes at a price. On the positive side, the group’s strong cash flow, high visibility of future profits and proven management skill in winning major contracts all provide strong support. On balance, market consensus opinion is positive in tone.

All yield figures are variable and not guaranteed.

Fundamental Data

* Prior to 31st December 2004, figures were stated under UK Generally Accepted Accounting Principles (GAAP). Recent figures stated under International Financial Reporting Standards (IFRS).