EDINBURGH, Dec 9 (Reuters) - Shares in Capita fell further on Friday after a profit warning and the decision to sell its asset management business left investors questioning the British outsourcing group’s strategy.
The company’s financial problems since the vote to leave the European Union, which has slowed the pace of decision-making by customers in the public and private sector, has prompted investors to look closer at the quality of some of its contracts and its method of shoring up its balance sheet.
Barclays brokerage arm referred to a contract to manage London’s traffic congestion charge and a mortgage management contract at Co-op Bank, flagged as problematic by Capita in September.
“(..) are they genuine one-offs or do they point to a growing risk appetite which has reduced the margin for error?” it said in a note to clients. Barclays has an “equal weight” rating on Capita and a 525 pence price target.
Capita, which offers IT-led admin services to help companies cut costs, shocked investors on Thursday by announcing the sale of its CAS asset management services arm, one of its most lucrative units with a profit margin of around 25 percent.
The disposal of CAS, thought by brokers to be worth at least 700 million pounds ($880 million) and described by many as one of the company’s “crown jewels”, is aimed at paying off debt while revenues wane because of a slowdown in spending in the wake of Britain’s vote to leave the European Union.
“The outcome of the business review lacks substance and our confidence in the management team’s ability to turn round Capita is low. More decisive action is required,” said brokerage Stifel, who cut the stock to “hold” from “buy” with a price target of 500 pence.
Shares were down a further 2.3 percent at 474.2 pence at 1424 GMT having fallen by 14 pct on Thursday.
Others noted a likely exit from Britain’s FTSE 100 index of leading shares after it lost 60 percent of its value in the last year. They also expressed doubts about the company’s ability to keep step with an increasingly competitive, complex and risky industry at a time of belt-tightening.
A spokesman for Capita said Chief Executive Andy Parker had reiterated his confidence that the strategy was the right one even as the shares fell sharply on Thursday. ($1 = 0.7948 pounds) (Reporting by Elisabeth O‘Leary; Editing by Keith Weir)