Investors in Capita could be forgiven for thinking it’s groundhog day.
First there was “Simplify, Strengthen, Succeed”. Unveiled in 2018 by new chief Jon Lewis, the strategy was coupled with a deeply discounted £701 million rights issue and £300 million of planned disposals.
Now there is “Future Capita”, his plan to simplify the outsourcer (again) into two core divisions focused on the public and private sectors, flog £400 million worth of businesses and save £50 million a year.
As Lewis has been at pains to point out, he inherited a basket case that had been inflated by a string of poorly integrated acquisitions. But the time for blaming his predecessors has passed.
The share price chart of the company, which handles London’s congestion charge, tells you much: it resembles a down escalator. The shares are trading at 40.72p, giving it a value of £686m. They were 280p when Lewis joined.
Outsourcing has been a hard place to make a living for several years, but Serco has restored its dividend and Mitie turned aggressor with a deal for Interserve’s facilities management business. Meanwhile, Capita, one of the government’s big suppliers, is still in the doldrums.
Investors and analysts have lost track of how many of Lewis’s grand plans have failed to materialise or fallen short. The sale of its ESS education software business to private equity raked in £300 million, far less than the market had expected.
When “Future Capita” was revealed in March, an analyst described it as “in the red zone on the bolloxometer”.
Lewis has also tried to make Capita a “purpose-driven business” by putting two employees on its board — worthy, but hardly likely to set the share price on fire.
The numbers make for better reading than Lewis’s window dressing — even if the story still is not good. While net debt has been cut from the £1.8 billion reached under former boss Andy Parker, it is still high at £1.1 billion. Meanwhile, revenues fell 9 per cent to £3.2 billion last year, amid the ravages of Covid, and profits were down 67% at £65.2 million.
Where Lewis, 59, has succeeded, though, is in downsizing the company— those revenues compare to £4.9 billion in 2016, and staff numbers have been cut from 70,000 to 55,000. He expects organic growth to return this year, not a moment too soon.
For a quick fix, the only hope is that a buyer with deep pockets turns up thinking they can do a better job through dismembering Capita — something I suspect Lewis would not be unhappy to see. He is running out of time to deliver. Avoid.