RBC sees no upside at Capita, cuts to 'sector perform'

The broker cut Capita from 'outperform' to 'sector perform', and slashed the target price for the shares from 42p to just 23p, causing the stock to fall 7% to 20.25p in morning trade.

The rating change comes a month after the company delivered a pre-close trading update for 2023, in which it disappointed the market with revenue growth and free cash flow (FCF). It reported a free cash outflow of £53m, which was impacted by one-off costs to do with a cyber attack last year – an incident that resulted in the resignation of its chief executive Jon Lewis.

"CPI disappointed again on FCF in 2023, highlighting that there remains a lack of visibility over cashflow generation. That plus a severe devaluation of peers, especially in the customer experience world, means that our [sum-of-the-parts] valuation no longer points to enough upside to be positive," the broker said.

"Whilst there remains material potential upside, if CPI can improve margins and FCF conversion, with the new CEO joining shortly, there is likely to be a lack of catalysts [...] until he has got his head under the bonnet."