Capita shares rally with new contract and subsidiary offloads

Capita shares rally with new contract and subsidiary offloads

Capita plc (LON:CPI) has seen its share price rally after turning round a year of loss, with the announcement of a long-term contract and the sale of its subsidiary, Park Eye.

The UK outsourcing firm confirmed today that it had secured a six year contract with the Department of Education; to print, distribute and collate Key Stage One and Two primary school assessments.

The contract will phase in the new assessment papers between September 2018 and September 2019, and is reported to be worth £109 million. In addition to providing assessment material, the contract requires Capita to mark 4 million papers a year and provide a secure portal for 16,000 schools and 4,000 test makers to access results and update records in one place.

This new development is a perfect combination for the firm. Not only does it further Capita’s interest in alligning itself with more central government contracts, but harnesses its extensive software capabilities and experience in working on public sector contacts. In a statement, the company’s Chief Executive Jon Lewis said:

“Capita is an established and experienced partner to the education sector and this contract further reinforces our strategy. We look forward to using our technology and service management capabilities to identify and deliver efficiencies and improvements ensuring both value for money and a positive experience for schools across England.”

In addition to this, Capita’s new CEO has taken steps to further his plans to simply the company and focus on turning a profit within the firm’s core assets by 2020. The mantra being – doing “[…] fewer things better”.

After selling its Supplier Assessment Services a month ago for £160 million, the firm announced last Thursday that it had finalised a deal to offload Park Eye to Macquarie for £235 million. As a result, Capita are well in excess of their £300 million disposals target set back in April, with Jon Lewis announcing that the move to sell off Park Eye marked, “[…] a further step in executing the strategy announced in April aimed at simplifying and strengthening the business to deliver future success”.

The firm have suffered losses from over-extending themselves and have been forced to terminate contracts without having any means of replacing those contracts with new ones. Going forwards, the company will hope to benefit from their structural remodeling and capitalise on the revenues accrued in its rights issue in May, which saw it sell over 973 million new shares and raise £681 million.

The firm’s share price has rallied 5.71 percent or 9.2p, to 170.35p per share, since trading started. Analysts from Shore Capital have reiterated their ‘Hold’ stance on Capita stock.