Goldman upgrades Capita, says poor outlook now in price after Thursday's slump

Goldman Sachs upped its stance on outsourcer Capita to ‘neutral’ from ‘conviction sell’ but cut the price target to 771p from 987p following the company’s profit warning on Thursday.

The bank said Capita’s outlook is poor, but following the 27% drop in the share price after the warning, this is now in the price.

Capita issued a trading statement reducing its outlook for organic growth dynamics and profitability on slower outsourcing trends, lower win rates and slower UK macro.

The group said it now expects underlying 2016 pre-tax profit if between £535m and £555m, which is 11% below the mid-point of company-compiled consensus.

As a result, Goldman cut its earnings per share expectations 9% on average over the next three years.

“We continue to see Capita suffering from lower organic growth dynamics in the UK over the next two years and expect 0.6% organic growth next year.

“We think risks are still overall skewed to downside towards profitability and cash generation as leverage continues to increase driven by FX and cost pick up. That said we think most of the concerns are now priced.”

At 0825 BST, the shares were down 2.9% to 678p.