Capita beats expectations as private sector outsourcing grows - UPDATE

23rd Jul 2014 13:46

- Organic revenue up 11%, revenue up 13.9%- Underlying PBT up 16%, EPS up 11.9%- Dividend up 10.3% to 9.6pFuelled by its highest ever level of bid pipeline prospects, outsourcing group Capita beat expectations with first half results, including £1.3bn of new contracts from an ever-broadening customer base that ranges from John Lewis to Transport for London and the Ministry for Justice (MoJ). Organic revenue growth of 11% is a vast improvement on the 3% seen in the same period the year before and has benefited from contract wins last year including from O2 and Barnet and Staffordshire councils together with new wins including electronic prisoner monitoring for the MoJ it inherited from disgraced rivals Serco and G4S. Capita has also made 10 small and medium-sized acquisitions in the year to date, for £240m, to enhance its IT and software capabilities or give it entry into a new markets.Added to organic growth this helped lift revenue 13.9% to £2.1bn in the first six months of the year, ahead of consensus, with visibility over revenue growth of at least 8% for the full year.Helped by improving margins momentum, underlying profit before tax rose 16.0% to £238.0m, earnings by 11.9% to 28.88p per share, and the dividend was lifted 10.3% to 9.6p.Chief Executive Andy Parker said the health of the UK outsourcing market was an important factor in the good start to the year.After converting £1.3bn of the bid pipeline, which stood at £5.5bn in February, it was quickly replenished back up to £5.7bn.On top of its established strong areas, the FTSE 100 group sees a particularly high level of interest in a number of newer growth areas to help boost the bid pipeline, including justice and emergency services and across the telecoms, retail, utilities and financial services sectors. Parker said growth prospects looked good with a high level of activity across Capita's markets, particularly in the private sector."As a consequence of our sales and acquisition performance in 2013 and to date in 2014, we have a high level of revenue visibility for 2014. This, together with the strength of our bid and acquisition pipelines, gives us confidence in our full year performance and provides a good platform for growth in 2015 and beyond."Analysts were encouraged. Simon Mezzanotte at Berenberg said the visibility for the full year's organic growth was important and he expected consensus EPS to move up by 2%/3% at this stage.Canaccord's Graham Brown was pretty bullish, hiking his target price to 1320p from 650p. He said: "Capita continues to demonstrate high quality execution. We view the combination of strong market share in a growing market, strong organic growth, scope for further acquisitions and the absence of FX driven downgrades seen across the UK equity market as quality attractions."Investec's Andrew Gibb was particularly pleased with the performances from Workplace Services, Customer Management, and the recovery in the Property & Infrastructure and IT businesses. He upgraded to 'add' from 'hold' and said: "Whilst the current valuation clearly reflects the positive growth momentum in the business, it is difficult to ignore the strength in underlying trading and the premium this warrants. We therefore upgrade our forecasts and move."Shares in Capita were up 3.8% to 1,199p at 14:40 on Wednesday.OH