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Capita downgraded to ‘sell’ by UBS as analysts cast doubt on 2020 turnaround

Published: 21:07 20 Jan 2020 AEDT

Capita PLC - Capita downgraded to ‘sell’ by UBS as analysts cast doubt on 2020 turnaround

Capita PLC (LON:CPI) has been downgraded to ‘sell’ from ‘neutral’ by analysts at UBS who are doubtful that the outsourcing firm can deliver a positive outcome for its turnaround efforts in 2020.

“The latest data on internal rebuilding and the external environment suggest 2020 will prove too early for a return to organic growth”, the Swiss bank said in a note, predicting instead that the FTSE 250 group will report a 2% decline for the year in opposition to consensus estimates of a 2% rise.

READ: Capita gets a pretty positive downgrade from JPMorgan

While UBS said employee satisfaction trends indicated that the company’s internal rebuilding was going well, headwinds “may be rising” from a worsening market as the UK private sector seemed weak while the pipeline for public sector tendering was “slow”.

“UK staffing trends suggest the outsourcing sector could see falling volume-related work until late-2020. It took Serco 6yrs under a new CEO to return to growth; consensus expects Capita to do the same in <3yrs”, UBS said.

However, analysts were optimistic on Capita’s longer-term turnaround prospects, adding that they expected an update on the strategy this year as well as an update on plans for the company’s portfolio such as disposals or acquisitions to accelerate a shift to higher value-added projects and digital services.

The bank also upped its target price to 140p from 130p, however, this was in response to a 44% rise in the shares over the last 12 months.

In mid-morning trading on Monday, Capita's shares were down 3.7% to 166p.

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