Questor share tips: Capita will benefit from imminent public-sector cuts

By Garry White Published: 5:17PM GMT 08 March 2010

Capita

719.5p -1.5p

Sunday share tips: SIG will distinction from PMs lightbulb impulse Bunzl has been left at the back of and should broach the products Afren will good from African Persian Gulf Petrofac will good from oil industry investment Wood will good as oil firms go on to deposit

Questor says BUY

Recent full-year formula from Capita Group were decidedly churned with the marketplace quite endangered about a slack in organic expansion at the association in 2009 and 2010. However, the apocalyptic state of the British Government"s finance government meant the opportunities for this outsourcing commercial operation over the subsequent couple of years are right away stronger afterwards they have been for a little time.

As Paul Pindar, the group"s arch senior manager remarkable over the weekend, there is a large intensity to cut open spending over the subsequent couple of years. He argued that cuts in open spending could be significantly some-more than has been suggested.

Mr Pindar was commenting on a minute the CBI sent to Alistair Darling, the Chancellor, forward of the Budget to contend that "re-engineering the approach open services are delivered can enlarge open zone productivity". The physique urged for cuts of �130bn from open spending.

Of course, Mr Pindar would contend that, wouldn"t he? He runs a successful outsourcing organisation that stands to good significantly from the cost-saving programme.

Capita already runs most such services. For example, it operates the BBC"s patron use unit, the Teacher"s Pension Scheme and the Criminal Record Bureau, amongst most others.

There are most some-more taxpayer-funded functions that can be outsourced to cut costs and it is unavoidable that this will happen. After the choosing yes or no celebration wins open spending has to be cut. There is no subject about it.

Last month, Alan Downey, head of open zone at KPMG, said: "The starting gun for a open zone retrogression has been fired."

He"s scold we have no preference if we are going to get the large debts to a docile level. So far, the brunt of the retrogression has been faced by private-sector companies. This is where the bulk of the pursuit waste have occurred. The open zone has been stable from cuts, but the retrogression in this zone is usually about to start. That equates to some-more outsourcing in 2011 and 2012.

This is where the event lies for all of the UK"s outsourcing groups. Roughly half of Capita"s contracts come from functions that were formerly in the open sector. Of course, there is additionally copiousness of range in the in isolation zone as businesses go on cost-cutting.

Capita"s 2009 formula showed pre-tax increase rising to �258.1m from �226.6m and revenues that rose to 2.7bn from 2.4bn. However, organic expansion came in subsequent expectations and the series of contracts the organisation won in the second half of the year slowed. In 2009 sum new projects won was �1bn, down from �1.24bn in 2008. The bid pipeline, at �3.7bn, was forward of the �3.1bn seen in Feb last year.

The shares were initial endorsed on Feb twenty-seven last year at 657p and the shares are 10pc forward of their letter of reference cost compared with a marketplace up XXpc. They are traffic on a Dec 2010 gain mixed of 16.9 times, descending to 15.1 subsequent year. The impending produce is 2.6pc.

Taking a longer-term perspective formed on the bid tube and the intensity for poignant outsourcing following the election, the position on the shares stays buy.

Petrofac

�11.16 +44p

Questor says BUY

Oil services organisation Petrofac once again completed improved than any one approaching in 2009. Not usually that, it managed to stand in the distance of the sequence book and it stays debt-free, with money of $1.4bn (�924m).

In the year to December, the organisation generated pre-tax increase of $447.5m compared with $355.6m in 2008 on revenues that grew to $3.65bn from $3.29bn. Order money entrance in in 2009 climbed to a jot down $7.3bn from $2.9bn in the prior to year, with the reserve rising to $8.1bn from $4bn. This equates to that about 90pc of approaching gain in 2010 has already been accounted for prior to the finish of the initial quarter. This gives certainty in gain forecasts.

There was additionally good headlines on the dividend. The last payout was lifted by 40pc, light the full-year division by 41pc to 35.80 cents. The last remuneration of 25.1 cents will be done on May twenty-one and the shares traffic ex-dividend for new investors on Apr 21. The shares are right away agreeable 2.6pc, but there is copiousness of range for this to improve.

Last week, Petrofac voiced the turn off of the North Sea resources and shareholders will embrace shares in the new group. The association is to mix UK North Sea fields with those of Swiss organisation Lundin Petroleum, combining a new commercial operation called EnQuest. The new association will be listed in London with Petrofac owning 45pc of the business.

Following the demerger, that is approaching to finish by the initial week in April, Petrofac shareholders will hold one share in Petrofac and one share in EnQuest. Petrofac"s government is assured there are good opportunities for converging in the North Sea and expansion can be completed at the unit. It will have no debt and cashflow from the start. So, investors can hold on to shares in the new association or sell them immediately. Questor will criticism entirely on EnQuest shares at a after date.

The shares are traffic on a Dec 2010 gain mixed of 12.8 times, descending to 11.5 in 2011. The ultimate set of numbers was exceptional, entrance in forward of marketplace expectations. Questor feels that this result, and the strength of the sequence tube equates to that the position on the shares is right away buy, up from hold.