Stock Analysis

Analysts Have Made A Financial Statement On Capita plc's (LON:CPI) Half-Yearly Report

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It's been a mediocre week for Capita plc (LON:CPI) shareholders, with the stock dropping 12% to UK£0.26 in the week since its latest interim results. Results look mixed - while revenue fell marginally short of analyst estimates at UK£1.5b, statutory earnings were in line with expectations, at UK£0.13 per share. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

See our latest analysis for Capita

LSE:CPI Earnings and Revenue Growth August 10th 2022

After the latest results, the consensus from Capita's seven analysts is for revenues of UK£2.88b in 2022, which would reflect a noticeable 6.6% decline in sales compared to the last year of performance. Earnings are expected to improve, with Capita forecast to report a statutory profit of UK£0.007 per share. In the lead-up to this report, the analysts had been modelling revenues of UK£2.96b and earnings per share (EPS) of UK£0.009 in 2022. From this we can that sentiment has definitely become more bearish after the latest results, leading to lower revenue forecasts and a pretty serious reduction to earnings per share estimates.

Despite the cuts to forecast earnings, there was no real change to the UK£0.39 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values Capita at UK£0.50 per share, while the most bearish prices it at UK£0.22. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. Over the past five years, revenues have declined around 7.2% annually. Worse, forecasts are essentially predicting the decline to accelerate, with the estimate for an annualised 13% decline in revenue until the end of 2022. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 15% per year. So it's pretty clear that, while it does have declining revenues, the analysts also expect Capita to suffer worse than the wider industry.

The Bottom Line

The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have estimates - from multiple Capita analysts - going out to 2024, and you can see them free on our platform here.

You can also see whether Capita is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.

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