Outsourcing group Capita has lost more ground after Tuesday's £274m fundraising and the £2.7m share sale by chief executive Paul Pindar.
The company said it was raising the money to fund future acquisitions, but a couple of brokers have now issued downbeat notes, and its shares are down another 13p to 669.5p after losing more than 2% on Tuesday. David Brockton at Espirito Santo said:
We believe Capita's share placing is indicative of the changing nature of its growth: the business now appears to carry a greater working capital requirement. Acquisitions also seem to be a more material feature of growth. The implication of both of these factors, in our view, is lower structural cash generation and a declining return on capital. While we make no material changes to our forecasts, anticipating that the dilution of the new equity will be offset by future acquisitions, we retain our sell rating and 560p fair value.
Meanwhile Julian Cater at Canaccord Genuity was less than convinced by the company's move, keeping his hold recommendation but cutting his price target from 680p to 670p:
Irrespective of management's spin about the acquisition opportunities, we believe that the placing has more to do Capita's balance sheet which is more indebted than it has ever been as a quoted company (2011 net debt of £1.33bn (and higher at March 2012); and the fact that contract terms will be less favourable than in the past (working capital absorption during mobilisations rather than prepayments). Tellingly, management indicated that the initial focus of acquisitions is on cost savings and synergies (rather than growth). This is indicative of a desire to maintain earnings momentum.
But he added:
Management has indicated that it will be disappointed if total contract wins for 2012 do not exceed £2bn. Key contract announcements are likely on West Sussex Council, Department for Transport Shared Services, and the CRB renewal in the next 3-4 months.
