Wednesday tips round-up: Capita and Smiths News

25th Apr 2012 06:54

The Tempus column in the Times has taken a look at outsourcing giant Capita which yesterday saw shares sink eight per cent on the back of a 274m-pound share placing."The market was taken by surprise. Capita hasn't raised a penny in equity finance for 12 years and, moreover, had said only two months ago that it planned to slow the pace of acquisition," writes Patrick Hosking, adding that Chief Executive Paul Pindar's decision to sell £2.7m worth of his own shares added to the negative sentiment (despite it being for personal reasons).Nevertheless, Hosking notes that the outsourcing market remains strong with public sector austerity actually being a positive for Capita. The shares trade at less than 13 times expected 2012 earnings and yield a prospective 3.7% - "That's more expensive than some rivals, but Capita has the advantage of scale, reputation and a longer track record that reassures clients as well as investors." Hold, recommends the paper.The Telegraph's Questor column has also given Capita a hold rating. The paper acknowledges that while there are dilution concerns with the share placing, an alternative route to raising capital would have been a rights issue "and the cost would be prohibitive for such a small fundraising.""Questor agrees part of the [share price] fall could be technical and the shares may recover, but remains cautious," said Garry White.Tempus also has analysed newspaper and magazine group Smiths News and yesterday's decision to push into the distribution-to-schools market with the purchase of Hedgelane for up to £38m in cash and shares.The shares trade at five times expected 2012 earnings and yield 9% - "That's the measure of how seriously investors regard the move online of newspapers and magazines," Hosking writes."Smiths is demonstrating that it can prosper for a few years yet in an environment in which physical sales of newspapers, magazines and books are all declining. Diversification is the long-term answer and the schools foray looks a good bet." Tempus says buy.Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.BC