Capita PLC

Capita PLC (LON: CPI) is an FTSE All-Share Index listed services business that provides consulting, digital, and transformation solutions to its clients.

Investment Rationale – SELL at GBX 25.38

• Profit Booking: CPI’s stock price has delivered over a 17% return in the last 1-month. Therefore, investors can book profit as per their risk-return profile.
• Decline in Free Cash Flow: There has been a decline in the free cash flow of the company to a negative £237.1 million in FY21, compared to a positive £303.8 million during FY20.
• Global Risk Concerns: British inflation hit a 30-year high of 7% in March 2022, which may cause a further interest rate hike. It can dampen economic growth and hamper corporate profits. The geopolitical tension over the war in Ukraine has given rise to raw materials cost and inflation. This can have an impact on the Company’s operations.
• Overvalued Multiples: On a forward 12-month basis, key trading multiples (EV/Sales, Price/Book and Price/Cash Flow) are quite overvalued against the median of the Industrials sector.
• Technical Indicator: The momentum oscillator 14-day RSI (68.55) is close to the overbought zone. Thus, the price can face retracement from the current levels.  

One Year Share Price Chart

 (Source: Refinitiv, Analysis conducted by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

*Peers: Mitie Group PLC, IDE Group Holdings PLC, and Softline Holding Plc.

*All peers are LSE-listed Companies from the Industrial industry.

Conclusion

Based on the attractive notional gains, macroeconomic instabilities, bearish technical indicators, coupled with the unfavorable Valuation conducted above, we have given a "SELL" recommendation on Capita PLC at the current market price of GBX 25.38 (as of 4 May 2022, at 8:00 AM GMT+1).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

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