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Capita jumps as Woodford and Barnett back cash call

Shares in embattled outsourcing group rally as investors welcome turnaround plan, with fund groups Woodford and Invesco backing rights issue.

 
Capita jumps as Woodford and Barnett back cash call
 

Shares in Capita (CPI) have jumped to the top of the FTSE 250 as investors welcomed chief executive Jon Lewis' turnaround plan for the embattled outsourcing group.

The shares were up 8.9% at 174p as the company announced a £701 million rights issue and reported a £513.1 million loss for 2017, widening from £89.8 million the previous year.

Capita's three-for-two rights issue will be launched at a heavily discounted 70p price.

Woodford Investment Management and Invesco, who between them own around 18% of their shares, have  signalled their support for the rights issue.

Fund manager Neil Woodford holds the stock in his Woodford Equity Income and Woodford Income Focus funds, with positions representing 0.6% and 1% of their respective portfolios.

Invesco fund manager Mark Barnett holds the bulk of the fund group's Capita shares in his Invesco Perpetual Income and High Income funds.

'Key to the share price advance is investor relief that a £701 million rights issue is fully underwritten, meaning various investment banks have guaranteed to take any of the new stock unwanted by shareholders, so there isn't any doubt that it won't raise all the desired money,' said Russ Mould, investment director at AJ Bell.

'The new cash should help remove financial pressure on the company's balance sheet and allow management to focus on finding ways to revive Capita's fortunes.'

Shares in Capita have fallen 83% over the last two years as the outsourcing group has delivered a string of profit warnings, suspended its dividend and said it would sell assets to plug its pension deficit.

Woodford has stuck by the stock, admitting it was a 'mistake' to own the company in 2016, when the shares were trading at over six times the current level,  but that he would not 'compound the previous error' by selling now.

Clarkson slumps on profit warning

At the other end of the FTSE 250, shares in Clarkson (CKN) tumbled 19.5% to £25 as the shipping services business issued a profit warning.

'The challenging environment in shipping and offshore capital markets has led to transactions being pushed back within the financial segment and has compounded a quiet period in sale and purchase activity for the group across shipping and offshore,' it said.

'Further, the group has suffered from lower freight rates within the tanker market and a fall in value of the US dollar, the predominant trading currency of the group's banking and broking business.'

That represents a blow to the company's small cap fund manager backers. Charles Montanaro holds the stock in his Montanaro UK Income fund, while it also features in the Montanaro UK Smaller Companies (MTU ) investment trust.

Clarkson is meanwhile a top 10 holding in the Franklin UK Smaller Companies fund.

The FTSE 100 was trading flat at 7,368, despite the boost from the falling pound, which continued to drift against the dollar, 0.2% lower at $1.398.

2 comments so far. Why not have your say?

richard tomkin

Apr 28, 2018 at 13:11

It is faint endorsement for these shares that Messrs Barnett and Woodford are to take up their rights.Throwing good money after bad is less embarrassing than admitting the folly of the original investment.

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S O

Apr 30, 2018 at 12:27

Why is the 70p rights price described as 'heavily discounted'? If I have 2 shares at value on the reference date (@ £1.54 approx.), then I purchase my entitlement of 3 shares @ 70p, the maths shows that the overall average cost/value per share will be exactly the (theoretical) price of each of the increased number of the company's shares post-rights issue. The 'discount' merely reflects the compensation for the diluted value of my initial holding. Or have I missed something?

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