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Capita (CPI) share price forecast: promising news but still much to prove
Capita stock has climbed 22.5% on the back of some positive news this year. But the share price has failed to move near to its pre-pandemic levels after last year’s 75.2% drop.
The company’s revenue has continued to decline, as reflected in top-line results for the last twelve months.
Could the company’s asset disposal programme change the face of this professional services business for good? Join us in the following Capita share forecast. We take a closer look at the company’s current situation, future prospects and consider plausible scenarios for what remains of 2021.
Capita share news
On 6 August, Capita reported interim results for the six months to 30 June, with adjusted revenues landing at £1.58bn ($2.17bn, Є1.84) – a near-identical result compared to the same period last year.
However, Capita’s profits before taxes landed at £261.1m ($358.9m, Є304.4m) - nearly 6 times the figure reported for the same period a year ago.
This elevated net profit was fuelled by £536m in extraordinary income coming from the sale of multiple business units, including ESS, Irish Life and AXELOS as part of a £700m proposed asset disposal programme that the company approved back in March this year.
Management has stated that it expects to see top-line results move higher after years of decline.
The apparent success of this restructuring effort appears to have excited market participants as Capita’s share price jumped 11.3% on the day the report came out, while shares have risen by as much as 33.3%.
Capita stock analysis: technical outlook
In the following section, we’ll perform a technical and fundamental analysis on Capita stock to draft possible Capita stock price forecasts.
Investors should not consider forecasts as a recommendation to buy or sell the stock. We encourage investors to do your own research before making any investment decision.
The latest uptick produced by Capita’s positive interim report appears to have reached a turning point after hitting a long-dated resistance at 52p. This would be at least the fifth time that the price has rejected a move above this threshold, which could have an impact on Capita’s future stock price.
Interestingly, trading volumes were fairly elevated on 25 August 2021 – more than 15 million shares exchanged hands on that day, almost double the 10-day average. The stock’s price lost over 5%, falling to 47.3p, but ending this week at 48p.
In technical analysis, when a rejection of a certain support or resistance area occurs during a high-volume trading session, it usually reinforces the relevance of said level. If that’s the case for Capita, this rejection could be a signal that the stock’s latest trend is about to change course.
Momentum oscillators appear to favour a bearish outlook. The Relative Strength Index (RSI) has just stepped out of overbought territory, while the Moving Average Convergence Divergence (MACD) has crossed below the signal line on the back of what would be the first negative histogram reading since 27 July 2021.
Moving forward, the 20-day and 50-day simple moving averages remain two important support levels to watch. If the stock price breaks those two levels, the downtrend could accelerate towards a horizontal support at 31.5p, resulting in a 34.3% downside risk, based on the current price of around 48p per share (31 August).
If momentum does pick up and the price manages to break above the 52p threshold, it’s also possible that Capita’s share price could enter a fresh bullish cycle. In that case, a plausible price target could be at 64.5p a share, based on the 1.618 Fibonacci extension of the stock’s latest retracement.
Capita fundamental analysis
Capita’s revenues have been steadily going down since 2016, moving from £4.37bn back then to £3.32bn by the end of 2020, at a compounded annual decline rate of 6.6%.
During that same period, statutory profits before tax have been quite volatile. Capita has drifted in and out of positive territory. The company reported £49.4m in profit before tax (PBTs) by the end of 2020.
Meanwhile, on an adjusted basis, the company’s earnings per share have declined from 19.31p, reported in 2016, to 4.19p by the end of 2020.
According to the latest interim report, Capita’s long-term liabilities (including lease and financial liabilities only) stood at £863.4m on total assets of £3.81bn, including £1.05bn in goodwill, £225.9m in intangible assets and £546m in cash.
The company’s financial position seems particularly strong. Capita has managed to reduce long-term borrowing significantly since 2016. This move has positioned the company favorably to improve bottom-line results on the back of lower interest expenditures.
Even though this positive bottom-line figure reported during the first half of 2021 appears encouraging, Capita still has to prove that its restructuring effort can deliver the kind of gains that investors are waiting to see in the long-term.
Capita (CPI) share price forecast
If you are looking to invest in Capita (CPI), the previous information could help you.
Based on technical readings, the stock’s outlook is not particularly promising, unless the price breaks the 52p threshold. Capita share price analysis suggests the company’s business looks stronger now that long-term debt has been reduced significantly and its cash flow generation capacity increased.
From a fundamental standpoint, the business still has much to prove. Even though restructuring efforts have advanced, the company hasn’t been able to reverse the downtrend in bottom-line results.
Given the high degree of uncertainty in regards to the company’s ability to successfully turn around its business, investors should consider Capita a risky investment. You should only invest money you can afford to lose.