The dust seems to have settled for now around Capita. Management expect about £500M of pretax profit this year, 2016 and expect 2017's result to be about the same. According to the corresponding EPS figures on digitallook's forecast table this gives c.2x cover for its current dividend for next year. AFAICS it has an impeccable history of rising dividends, and a director recently bought a wedge.
I believe, like BLT, that Capita is a good company operating in a lousy industry. Sure it c*cks up contracts but then so have G4S, MITIE, Interserve, Balfour etc. That goes with the contracting territory (with the interesting exception of CLLN). I would have said a "great" company, but I know some of you have been the victims of outsourcing and I have lingering doubts over an acquisition based strategy, and high debt. At a 7% yield, well covered even on reduced forecasts, I am thinking of buying. Compare and contrast with VOD, whose earnings are nowhere near covering the dividend, or GSK, in a similar situation.
So leaving aside the politics of outsourcing, and good old Luni's "warning, nay danger, zone", how safe do you folks think the CPI dividend is?
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Capita
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- Lemon Slice
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