Capita scores O2 contract and ups full year guidance -UPDATE

21st May 2013 07:02

Outsourcing giant Capita has been selected by O2 as their preferred bidder to form a 10-year strategic partnership for customer management services. The group also announced that following the deal it has now secured over £2.0bn of major new and extended contracts to date in 2013 and as such expects to achieve greater-than-anticipated organic growth for the full year 2013, with current visibility of at least 8.0% organic revenue growth (up from 6% at the February prelims).Under the agreement, Capita will enhance and expand its digital service offering to customers. Final negotiations are now taking place, with the contract expected to be worth approximately £1.2bn and due to begin at the start of July. Paul Pindar, Chief Executive Officer, Capita, said: "O2 is a brand renowned for its innovative and bold approach to delivering services and, as a result, has a loyal customer base. Capita will design an enhanced service around customers' evolving needs, introduce new capabilities quickly and ensure that customers' experiences continue to be excellent. "We will build on our existing long term relationship with O2 through `best of breed' technology platforms which support service flexibility, quality and efficiency. Close partnership working with O2 will enable us to adapt our customer management services to seamlessly match developments in O2's service offering."Today's announcement demonstrates the added value we can deliver to our clients through deploying our industry leading customer management services capabilities and extensive operational delivery infrastructure and drawing on our experience of the evolving digital landscape."Commenting on the announcement analysts at Jefferies highlighted that Tuesday's "substantial" O2 contract win compensates for the disappointing news that Capita missed out on the NS&I bid yesterday. However, they added that "the short term corollary to large contract wins is often margin pressure as they are mobilised and we think margin guidance could drift by 10-20 basis points. We believe this could limit FY13E consensus earnings per share (EPS) upgrades."As an aside, Jefferies also says that a decision by the MET Police to outsource back-office operations to private service providers could potentially open up a £2bn market opportunity.Lastly, Goldman Sachs has raised its target price on shares of Capita from 1140p to 1175p. NR