MARKET REPORT: Eager investors pile into Capita

Eager investors piled into Capita after it confirmed it is lining up the sale of a lucrative IT arm. 

The contractor is preparing to sell education software that helps schools do everything from recording student attendance and managing lunch payments to keeping in touch with parents. 

The former contractor-of-choice for Tony Blair’s Labour government confirmed media reports about the sale plans shortly after the market closed on Friday – leaving traders hanging over the weekend – and came a few hours after it announced it had sold its legal software business, Eclipse, for £56.5m. Education Software Solutions is expected to have a far heftier price tag – perhaps as much as £500m. 

The upcoming sale is the result of a tricky restructuring initiated by chief executive Jon Lewis – who took over in 2018 after a string of profit warnings – to move the company away from low-value, labour-intensive contracts to focus on hi-tech work. 

And more sales are to come, with Capita saying it plans to sell off a number of standalone software divisions ‘that have little overlap or cross-sell’ with the rest of the company. The turnaround came at a price in 2019, when the FTSE250-listed group swung to a £62m loss. 

But reaching this point now means the company will be able to shore up its finances at a critical moment after being hit hard by the pandemic sell-off. 

Analysts at Citi, which has a buy rating on Capita, said the disposal programme could bring in £900m or more, which would be enough to knock its net debt on the head. 

Capita shares rallied 13.2 per cent, or 5.68p, to 48.75p, as investors digested the news. The wider midcap FTSE 250 started the week on worse footing, falling 0.6 per cent, or 113.82 points, to 17573.44, while the FTSE 100 dropped 0.8 per cent, or 47.98 points, to 6244.62 on a choppy day of trading. 

Rising Covid-19 cases in the US have made equity markets jittery and sent investors flocking to gold, as they look for a safe haven. Gold prices edged around 1pc higher to $1758 an ounce yesterday. Although this failed to put fuel under gold stocks in London, FTSE 250 newcomer Petropavlovsk rose 4.1 per cent, or 1.25p, to 32p, adding to a rally on Friday after it announced plans to pursue a listing in Moscow. 

Mining giant Glencore (down 3.4 per cent, or 5.78p, to 166.2p) fell out of traders’ favour as they churned over news that the Swiss attorney general has opened a criminal investigation into the company over alleged corruption in the Democratic Republic of Congo. As with Capita, Glencore put out the update after the market shut on Friday. British Gas-owner Centrica (down 3.7 per cent, or 1.57p, to 41.44p) was also in the red after unveiling plans to launch its own version of a digital-first challenger energy supplier – currently known as British Gas X – to lure back customers it has lost in recent years. 

Elsewhere, John Menzies said it has so far had a better second quarter than it had been expecting when it last updated the market in March. 

The business, which coordinates services at airports such as baggage handling and refuelling planes, reckons it has enough cash to last the rest of this year and into 2021. 

It has been helped by being able to tap into employment support schemes in a number of countries. 

Shares in the group, which is banking on flights slowly resuming next month, added 7.4 per cent, or 10.6p, to 154.6p. 

And embattled cinema chain Cineworld, which is gearing up for cinemas to start reopening in July, fell 1.3 per cent, or 0.98p, to 76.38p, despite securing an additional £201m in funding.