Capita shares target raised by RBC on disposal gains By Investing.com

On Thursday, RBC Capital adjusted its outlook on Capita Plc. (LON::LN) (OTC: CTAGF) shares, raising the price target to GBP0.22 from the previous GBP0.18, while keeping a Sector Perform rating on the stock. This change reflects the financial impact of the recent disposal of Capita One and the subsequent improvement in the company’s balance sheet.

The analyst from RBC Capital noted that the sale of Capita One, although dilutive to the 2025 earnings estimate by approximately 16%, was executed at a favorable price. This transaction has notably enhanced the company’s balance sheet position. The revision in the sum-of-parts (SOP) valuation, which led to the increased target price, also considers the recent re-rating of Capita’s industry peers, such as TEP and SRP.

Despite the raised target price, the analyst maintained a neutral Sector Perform rating on Capita’s shares. The analyst cited the company’s yet-to-be-demonstrated ability to generate sustainable free cash flow (FCF) and the challenges it faces in achieving growth. Additionally, concerns regarding the impact of artificial intelligence on Capita’s customer experience business were mentioned as potential issues that could influence the company’s performance.

The report also hinted at a significant upside scenario but emphasized that Capita still has numerous challenges to navigate. The company’s progress in these areas will be closely monitored by investors and industry observers alike.

InvestingPro Insights

Capita Plc’s (OTC: CTAGF) financial landscape presents a multifaceted picture, as highlighted by the latest InvestingPro data and tips. With a market capitalization of $464.25 million and a negative P/E ratio of -1.97, the company’s valuation challenges are apparent. The revenue for the last twelve months as of Q4 2023 stands at $3.588 billion, reflecting a decline of 6.63%, indicating pressure on the top-line performance. Gross profit margin remains modest at 24.97%, underscoring operational efficiencies that could be leveraged for future growth.

An InvestingPro Tip suggests that Capita is expected to see net income growth this year, which aligns with RBC Capital’s analysis of the company’s improved balance sheet post the disposal of Capita One. However, the company’s financial health is a concern with a significant debt burden and short-term obligations exceeding liquid assets. Additionally, the stock’s volatility and the RSI indicating an overbought condition may suggest caution for potential investors.

For those considering an investment in Capita, the company’s ability to become profitable this year, as predicted by analysts, could be a key factor to watch. It’s also worth noting that Capita does not currently pay a dividend, which might influence investment decisions depending on individual strategies. For more in-depth analysis and additional InvestingPro Tips, interested parties can explore https://www.investing.com/pro/CTAGF. To get the most out of the experience, use the coupon code PRONEWS24 to receive up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, providing access to a total of 12 additional tips that could further inform investment decisions.

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