Capita shares plunge again as 2018 recovery looks unlikely

Capita recently won a new seven-year contract with the Cabinet Office to administer the Royal Mail statutory pension scheme - Getty Images

Shares in outsourcing firm Capita plunged as much as 14.6pc on Thursday morning after a downbeat trading update put paid to hopes of a recovery next year.

The company warned that the market for contracts was “subdued” and flagged challenges for both its public and private sector divisions.

Shares in the firm slumped as low as 397.9p during the morning’s trading, the first time the stock has slipped below £4 in a decade.

Capita said that although it expected “good underlying profits” from its Private Sector Partnerships business this year, it anticipates “a higher level of contract and volume attrition which... could impact upon the performance of the division in 2018”.

Meanwhile the end of two major software licences in the second half of last year is expected to have a knock-on effect into this year for Capita’s Digital division.

New chief executive Jon Lewis – who started on December 1 – will press on with the turnaround plans at pace in 2018, with the group saying it would give more details next year on aims to “broaden the transformation of Capita”.

This will include a greater focus on contracts that offer the best potential for growth. It expects to incur restructuring charges of £18m this year, it said.

Capita still expects underlying profits to rise in the second half of 2017, and that trading in the year to date had been in line with its expectations.

The firm, which provides IT management services to businesses and local authorities, has been rocked by a string of profit warnings in recent years, which resulted in previous chief executive Andy Parker stepping down September.

Mr Lewis, a turnaround specialist who had previously been at Amec Foster Wheeler, vowed to introduce a “multi-year strategy” and new technology to turn the troubled outsourcing group around.

Christopher Bamberry, analyst at Peel Hunt, said: “Looking forward to 2018, the lack of accretion from current bids (if successful) and increased attrition in Private Sector Partnerships means that forecasts will need to be reduced (again).”