Investec upgrades Capita, sees momentum building

23rd Jul 2014 11:14

Investec said it sees momentum building at Capita after a "strong set of interims" from the outsourcing group, which revealed double-digit organic growth and operating margins.The broker has lifted its recommendation for the shares from 'hold' to 'add' and hiked its target price from 1,100p to 1,230p.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 Ministry of Justice. Together this helped lift revenue 13.9% to £2.1bn in the first six months of the year, while underlying profit before tax rose 16.0% to £238.0m."Whilst the current valuation is not compelling, it is equally difficult to ignore the strong momentum in this business, which sets it apart from its other outsourcing peers in terms of organic growth levels, operating margins and cash performance," Investec said."We therefore upgrade our forecasts and move to 'add' from 'hold'."The stock is trading at 18 times estimated 2014 earnings, the broker said.The shares were 4% higher at 1,201.16p by 11:12.BC