Outsourcer Capita (CPI) produces some good news for investors with a £109m six-year contract from the Department for Education’s Standards and Testing Agency to manage and support all primary school national curriculum assessment tests in England alongside the disposal of a non-core asset.
The shares are up 4.6% to 168.5p accordingly. Under the terms of the contract, Capita will manage the end-to-end process for primary school national curriculum assessment tests in England.
This would include printing, distributing, and collating over 9m test papers annually for key stage 1 and key stage 2 tests and administering the marking of four million key stage 2 test papers annually.
The six-year contract, covering the 2020 to 2024 test cycles, is worth approximately £109m, with the new service starting in September 2019 following a phased implementation and transition from September 2018.
FIXING THE BALANCE SHEET
In a separate announcement, Capita says it has agreed to sell its parking management business, ParkingEye, to a Macquarie and MML Capital Partners consortium for £235m.
This is expected to take the amount booked from non-core disposals to £400m - well ahead of a targeted £300m.
This is significant as a key factor in the recent underperformance of the shares has been the fragility of the balance sheet, something which was partly addressed by a £701m rights issue earlier this year.
However, Shore Capital analyst Robin Speakman, who rates the stock at ‘hold’, reckons it would be a mistake to get carried away.
‘A welcome win for Capita then in a key vertical in the public sector. However, we still caution that the public sector market for contracts remains subdued and is likely to remain so for the immediate future; Capita's new contract flow still remains below its revenue and profit replacement rate and so continues to weigh on reported financials.'
