Shares in outsourcing group Capita (CPI) jumped 14% on news it was selling its private sector contact centre. The buyer, Inspirit Capital, will pay £1 initially and up to £61.5 million over the next three years.
Earnings-accretive deal
Capita described the deal as ‘an important milestone’ which would allow it to significantly streamline its operations and investments. The sale provides ‘an opportunity to accelerate margin expansion and free cash flow generation, while leveraging current capabilities to further increase growth’.
In terms of numbers, the deal is earnings-accretive as is reduces overheads and removes complexity. The group expects operating margins to increase by 200 basis points to 7.2% by 2027 against 5.2% last year.
The group will also spend around £20 million to reduce costs by around £40 million across 2026 and 2027. That should return it to positive free cash flow in 2026 excluding the impact of business exits.
‘We are extremely pleased to have reached agreement for the sale of our private sector contact centre business’ said CEO Adolfo Hernandez. ‘We believe the business is best placed to succeed for the long term under new ownership’, added the CEO.
Once upon a time, Capita was the darling of the UK stock market with a multi-billion pound market cap. However, a series of missteps and lack of pricing discipline saw the shares lose over 95% of their value.
The last couple of years have seen the group slim down, sell off non-core businesses and focus on what it’s good at. Today’s deal continues that process and also means management can concentrate on the firm’s core attributes.
We’ll be keen to hear what managementm has to say at its upcoming Capital Markets Day in June. It has teased today with references to ‘refreshed financial targets’ and its capital allocation policy along with its ‘AI journey’.
Read the press release here: https://www.capita.com/investors
