Capita delivers 'robust' first half

Having already updated on an excellent start to 2013 (see Capita wins O2, upgrades to 8% organic growth), BPS market leader Capita delivered a predictably good set of results in H1. Capita called the results 'robust', presumably because there were one or two blips.

Headline revenue was up 13% (of which 3% was organic) to reach £1.82bn. The underlying operating margin however fell 80 basis points to 12.5% as a result of a combination of factors – a record number of new contract implementations, integration of some larger acquisitions (Reliance and Northgate Managed Services), and challenges in Capita’s general insurance business.

Following an impressive surge in new signings in May (including O2), Capita raised its organic growth guidance from 6% to at least 8% in FY13. This suggests particularly strong organic growth to come in H2, as recent big wins like O2, Carphone Warehouse, the Civil Service ITIL joint venture (see here), Staffordshire (see Staffordshire £1.7bn megadeal Capita’s largest ever), and Barnet (see here) all generate significant new organic revenue growth.

Capita is delivering growth across all divisions, with the exception of IT Services (formerly IT Services and Consulting), and insurance and benefits (formerly general insurance), which declined 2% and 3% respectively. Property was also highlighted to be suffering from the current economic conditions. So it is strengthening the management teams in both ITS and property, meanwhile, undertaking a review of insurance to determine the future positioning in its more competitive market segments.

IT services and insurance in particular are concerning. Capita sees IT services as a key engine for growth and of course it is integral to Capita’s BPS operations. It is also where Capita has focused a lot of its recent M&A investments, like Northgate MS (see Capita acquiring Northgate MS puts spotlight back on ITS). Meanwhile Capita should be doing much better in insurance given the fact that it is a leading insurance BPS player in what is a high growth market (see UK Business Process Services Market Trends & Forecasts, 2013). Competitors like Quindell Portfolio and The Innovation Group are clearly taking market share (see here). 

There will be plenty more to say following the management presentation, which we will cover in UKHotViewsExtra for subscribers.