Credit Suisse uncomfortable with political risk at Capita, cuts to 'underperform'

10th Mar 2015 09:59

Shares in British outsourcing group Capita were hit on Tuesday by a downgrade at Credit Suisse, as the Swiss bank raised concerns about "uncomfortable political uncertainty".Credit Suisse has lowered its rating from 'neutral' to 'underperform' and cut its target price from 1,200p to 1,080p, saying that political risks are rising before the general election in May."The political landscape in the UK is fragmenting and policy uncertainty is elevated given the Labour party's shift to the left since last in government and the potential for marginal parties to hold the balance of power," the bank said.After a largely benign policy backdrop over the last two decades for the outsourcing sector, Credit Suisse highlighted rising opposition among senior Labour politicians to the industry as it is currently structured."Although Capita has won some good contracts and executed logical, value-accretive M&A year-to-date, we see the risks around significant market intervention in the event of a Labour-led administration (both financial and bureaucratic) as too great to ignore and see little in the share price or estimates for impairment to the scale or profitability of the UK public sector BPO [business process outsourcing] opportunity," the bank said.It highlighted that Capita's valuation is currently at a 13% premium to its 12-year historical average.The shares were down 1.2% at 1,177.73p by 10:07.