CPI: AI Turnaround Will Reach Inflection As Public Sector Platform Scales

Analysts have lifted their price target on Capita from £4.96 to about £5.09, citing a strengthening turnaround that is now at an inflection point and gaining momentum. This is supported by slightly lower perceived risk and an improved valuation multiple, despite modestly softer growth and margin assumptions.

Analyst Commentary

Bullish analysts highlight that Capita is emerging as a more focused, higher quality business process outsourcing platform, particularly in the UK public sector, with a clearer path to sustainable growth and margin recovery. They argue that the upgraded price target still leaves room for further upside if execution continues to improve and cash generation normalises.

Bullish Takeaways

• Bullish analysts point to the company’s entrenched position in UK public sector outsourcing as a durable competitive advantage that can support a premium valuation multiple over time.
• The turnaround is viewed as past the most difficult phase, with operational simplification and portfolio pruning expected to translate into more predictable growth and improving margins.
• Improved balance sheet visibility and lower perceived risk are seen as catalysts for a gradual re-rating from distressed levels toward a more normalised peer multiple.
• Supportive demand for outsourced services, particularly as public sector clients seek efficiency savings, is expected to underpin medium-term revenue growth and earnings compounding.

Bearish Takeaways

• Bearish analysts remain cautious that execution risk around large, complex contracts could delay margin expansion and constrain near term earnings growth.
• Concerns persist that any missteps in delivery or contract renewals may limit the pace at which valuation multiples can expand from current levels.
• Slower than expected improvement in working capital and cash conversion could temper the speed of de leveraging and thus cap upside in the share price.
• Ongoing exposure to government spending cycles and policy shifts is seen as a structural risk that may introduce volatility into growth and investor sentiment.

What's in the News

• Capita launched The AI Catalyst Stack to operationalise AI at scale and support its ambition to become the first AI enabled business process outsourcer, embedding AI across mission critical services. (Key Developments)
• The new "agentic BPO" model combines AI agents that coordinate end to end workflows with human oversight for quality, compliance, and empathy driven interactions. This model is already delivering measurable gains in assessment, public safety, procurement, and customer experience operations. (Key Developments)
• Capita reports AI enabled performance improvements including 17 to 20% faster handling times, up to 35% productivity gains, and double digit increases in customer satisfaction through its AgentSuite integration with AWS Connect, Amazon Lex, and CapitaContact. (Key Developments)
• The AI Catalyst Stack is designed to meet UK public sector requirements, with embedded policy packs, data controls, and human in the loop oversight. It aligns with the UK Government's AI Growth Labs initiative to accelerate safe innovation. (Key Developments)
• The modular stack architecture uses hyperscaler AI technology, a secure multi cloud integration fabric, and a governed semantic data layer. It is built to enable safe AI deployment, real time analytics, and machine learning pipelines in regulated environments. (Key Developments)

Valuation Changes

• Fair Value: risen slightly from £4.96 to approximately £5.09 per share, reflecting a modest uplift in the intrinsic valuation.
• Discount Rate: fallen slightly from about 11.38% to 10.81%, indicating a lower perceived risk profile in the updated model.
• Revenue Growth: reduced modestly from roughly 1.44% to 1.31% per annum, signaling slightly more conservative top line assumptions.
• Net Profit Margin: edged down from around 4.54% to 4.35%, incorporating a small tempering of margin recovery expectations.
• Future P/E: increased modestly from 7.15x to 7.58x forward earnings, implying a somewhat higher valuation multiple applied to projected profits.