World 31.1.2018 06:38 pm

Shares plunge in UK financial services group Capita

Shares plunge in UK financial services group Capita

The share price of British financial services group Capita plunged more than 40 percent on Wednesday after the indebted outsourcing firm warned over future profits.

Analysts said the group risked ending up the same way as construction company Carillion, which shut earlier this month with a mountain of debts.

But a Downing Street spokesman dismissed such suggestions, insisting that the government does “not believe that any of our strategic suppliers including Capita are in a comparable position to Carillion”, which did much outsourcing for the UK government.

Capita has a similar relationship with the state, operating for example the London congestion charge that drivers pay for entering the capital’s central areas.

Capita’s new chief executive Jonathan Lewis meanwhile on Wednesday admitted that the company faced deep problems.

“Today, Capita is too complex, it is driven by a short-term focus and lacks operational discipline and financial flexibility,” Lewis, who started in the role just two months ago, said in a statement.

“Cost savings and non-core disposals alone will not be enough. We have also taken the significant decision to suspend the dividend and seek equity,” he added.

Around 1500 GMT in London, Capita shares traded down 43.37 percent at 196.95 pence, compared with the closing value on Tuesday.

The group does not feature on London’s benchmark FTSE 100 after exiting the top index in early 2017.

Capita, which employs 70,000 people worldwide, said Wednesday that it needed to raise £700 million ($990 million, 796 million euros) after losing contracts and despite deep cost cutting at the company.

The “announcement by government outsourcer Capita of a potential £700-million rights issue, a suspension of the dividend and a profits warning had the entirely predictable response of seeing the share price nosedive by over 40 percent to their lowest levels since 2003”, said Michael Hewson, chief market analyst at CMC Markets UK.

“Since 2013 the company has seen is market cap drop from £6.9 billion to £1.3 billion.”

Helal Miah, investment research analyst at The Share Centre, said Capita could turn into “another hot political issue”.

He added: “The government have already placed other companies on watch after the Carillion fiasco… The sector in general hasn’t had a great few years and this has been exacerbated by Brexit where contract awards have been delayed due to uncertainty.”

The government refused to bail out Carillion, noting that the bulk of its work was with the private sector. Banks also refused a last-minute rescue.

 

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