Broker snap: Jefferies highlights 'substantial opportunity' at Capita

21st May 2013 10:45

Jefferies has kept its 'buy' rating and 1,010p target price for outsourcing giant Capita after a 'significant contract win' announced on Tuesday with O2.The company has been selected as the preferred bidder for a 10-year strategic partnership for customer management services with the network provider. The deal is expected to be worth around £1.2bn and would contribute 1.5% and 1.0% to 2013 and 2014 organic revenue growth at Capita, Jefferies said."The substantial O2 contract win compensates for the disappointing news that Capita missed out on the NS&I bid yesterday," the broker said.Meanwhile, the company said that organic revenue growth would be "at least 8.0%" this year (up from the previous 6.0% target), though Jefferies believes that forecasts upgrades will be limited given softer margin guidance.In other news, a Financial Times report said that the Metropolitan Police (Met) is in talks to private-sector providers about contracts (worth £800m in annual revenue) for back-office services and cited companies including G4S, Capita and Serco.Jefferies said that it would consider G4S and Capita as front runners for the deals and could be a "substantial opportunity" for the latter."Police outsourcing momentum largely ground to a halt in late 2012 after G4S's Olympic security problems caused many police forces to reconsider their plans. However, budget cuts remain an unresolved issue for many forces. "If it chooses to outsource, the Met would establish a strong precedent as it accounts for 25% of UK police spending, and could open up a c£2.0bn market opportunity."The stock was up 6.53% at 1,011p by 10:56 on Tuesday.BC