Capita PLC Boasts £2bn Secured Deals, Lifts Dividend 10% To Yield 2.4%

Profits and revenues grow at Capita PLC (LON:CPI) in first-half of 2013, but margins slip.

Mark Rogers

As the Head of The Motley Fool’s UK Investing Team, Mark approaches the stock market with the same old-fashioned business instincts and values that he honed growing up around the family business. An investor for 20 years, Mark specialises in unearthing top-quality under-the-radar investments in the small-cap market. He currently serves as Director of Investing for Motley Fool UK services and Managing Director of Motley Fool UK.

Published 25 July, 2013 10:43 am BST

| More on: CPI

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

The shares of Capita (LSE: CPI) dropped 3% to 1,007p during early London trade this morning despite the FTSE 100 outsourcer announcing strong growth in half-yearly sales and reported profits.

Capita, which outsources back-office business tasks for large corporations, announced it had secured £2bn of new business in the first half of 2013. That’s a further £1.3bn of new deals to add to the ones already confirmed by the company in May.

The group’s revenues surged by 13% to reach £1.8bn for the period, while underlying profits grew more narrowly by 6% to £229m. This meant that Capita’s operating margins slid to 12.5% for the period, weighed down by start-up costs for its new contracts, and the expenses to integrate its latest acquisitions.

Looking on the bright side, Capita CEO Paul Pindar remarked:

“The return of strong organic growth, improved cash conversion, a replenished bid pipeline and a good pipeline of potential acquisitions, underpin our confidence in full year performance and provide a strong platform for further progress in 2014 and beyond.”

Underpinning the results, Capita announced it would lift its interim dividend by 10% to 8.7p per share. That means that based on the current price, Capita’s shares offer a trailing yield of 2.4%.

Of course, whether that dividend yield, today’s results and the wider prospects for the outsourcing industry all combine to make shares of Capita a ‘buy’ remains your decision.

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> Mark does not own shares in Capita.