Barclays reinstated coverage of Capita on Wednesday at ‘overweight’ with an 80p price target following completion of the Axelos disposal.
The bank said that in isolation, the sale removes around £30m from EBITA and pre-tax profit, but much less from net profit, as Capita owned only 51%.
Cash proceeds of £183m reduce FY21 net debt to an estimated £430m, it said, or 1.7x EBITDA.
“Disposal proceeds (including ESS) now stand at just shy of £500m, well on the way to management’s target of £700m by the end of next year.
“Reflecting this, we lower FY21e profit before tax by 19% to circa £125m and FY22e by 13% to circa £177m, with earnings per share falling 11% and 8% respectively; our underlying forecasts are largely unchanged,” Barclays said.
It noted that Capita now trades on a FY21/22e price-to-earnings of 6x/4x (and EV/EBITA of 9x/7x). This more than factors in further dilutive disposals and fails to give credit to deleveraging and operational improvement, it said.
Barclays said there is “considerable” potential upside to its price target if management delivers on its transformation programme.
