Shore Capital upgrades Capita to 'buy', sees 50% upside

The share price of Capita was given a much-needed boost on Friday morning after Shore Capital upgraded its rating on the business process outsourcing company from 'hold' to 'buy'.

The stock, having lost over a quarter of its value in the past month, is now trading at 20.9p (up 3% on Thursday's close).

Capita disappointed investors last week with its first-half results, reporting revenues, negative free cash flow, losses and debt figures below expectations. The news also comes after two data breaches, a possible fine and the announced exit of its chief executive Jon Lewis.

Shore Capital analyst Robin Speakman said "operational challenges" are still evident for the group, but thinks a lot of the bad news is already baked into the price.

"It is apparent, with restructuring due to complete this year, that Capita is set to begin to deliver better results. Much is now behind the group, challenges remain, but survival is not in doubt," Speakman said.

"Over the next year we expect to see free cash flow strengthen and profitability rise. Given survival and operating improvement, we can’t justify a 20p share price and a 'hold' stance."

Shore Capital estimates 50% upside to the current share price to around 30p, though much "hangs on the visibility of free cash flow improvement". The broker expects a swing back to positive cash generation in 2025.