(MENAFN- ProactiveInvestors - UK) Outsourcing services conglomerate Capita (LON:CPI) revealed it had got off to a slow start to 2016 this morning.
The company said it had secured 251mln contracts so far this year down from 1.1bn at the same stage last year while the bid pipeline total contract value had fallen to 4.7bn from 5.1bn.
The order book situation overshadowed a solid set of results for 2015 in which the company achieved 4.3% organic growth in revenues which rose to 4674mln from 4372mln the year before.
Headline profit before tax climbed 9% to 585.5mln from 535.7mln in 2014. Reported profit before tax which includes exceptional items tumbled to 112.1mln from 292.4mln the year before reflecting business disposals and write-downs on retained assets.
Earnings per share rose in line with pre-tax profits to 70.73p from 65.15p in the previous year providing healthy cover for the full-year dividend pay-out of 31.7p (2014: 29.2p).
'We have re-positioned the business away from certain non-core lower growth businesses and enter the current year in a strong strategic and financial position enabling us to raise our margin target range to between 13.0% and 14.0%' revealed Andy Parker chief executive of Capita.
'In 2016 we are targeting organic revenue growth of at least 4% driven by the combination of growth from our divisional businesses and conversion of our bid pipeline. In the longer term we remain excited about the significant structural growth opportunities in our markets and will continue to manage the business to deliver strong EPS growth cash flow and return on capital' he added.
Shore Capital's Robin Speakman said the revenue number was around 100mln below its estimate but the underlying profit before tax was in line with its forecasts.
'Net debt also missed our forecast at 1.84bn; we had factored in a better cash performance anticipating a figure of 1.76bn' Speakman said.
'Investors will look closely at the margin guidance for FY2016F this morning with guidance for the range lifted from 12.5% to 13.5% to 13.0% to 14.0% - we stress that this is likely to be as a result of slow 'new-business strain' i.e. more mature contracts in the mix as opposed to new lower margin business coming throughso not necessarily positive in the medium to long-term in our view' said Speakman who has a 'hold' recommendation on the stock.
'Guidance for organic growth this year is set at 4% (in-line with our forecast assumption) which looks a challenge to us in the context of a continued slow central government market with ministers' attention focused on BREXIT so a bit of contract hiatus is likely to continue to our minds' he added.
Panmure Gordon's Michael Donnelly meanwhile remained bearish on the stock.
'The impairment is probably not as large as we had feared but the risk now is that further impairments in other divisions will further occlude what is already an increasingly incomprehensible set of accounts' Donnelly suggested.
The company's exit from weaker businesses has clearly driven a marginal improvement in metrics but falling cash generation and conversion should remain a concern for investors as the portfolio is further rebalanced in Donnelly's view.
Shares in Capita were down 5.6% at 1011p in mid-morning trading making them comfortably the worst performers among FTSE 100 constituents.
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