Model Portfolio and Tough Time for Capita

Model Portfolio Update

Below is an update on the model portfolio – if you double click on it you can see all the data a lot more clearly – and this year has been kind so far with strong returns from the major holding of Index Linked Gilts and the support of recent buys in Atkins (WS) and Interserve.

considered-end-of-sep

The details at the bottom of this graph show a few more stats and I am so far happy to stay where I am with weighted price ratios pretty low – CAPE in particular is still a fair bit off the 16x number that is generally considered fair value; this coupled with some pretty healthy yields (that on the whole are well covered) means income will also play a part.

considered


 

Tough Times for Capita Plc

A profit warning from FTSE-100 firm Capita today has seen the price fall almost 26%!

capita

Looking at the Cyclically Adjusted PE (CAPE) this has now moved over 3 Standard Deviations from its average

capita-plc

Lets not get too excited about value just yet!

Sometimes I feel that it can be easy to see a fall like this and assume value straight away, but lets not forget how important protection and financial security is when assessing whether or not to invest in a share; looking at Capita my concerns are

  1. Current ratio is below 1 at 0.86
  2. Dividend cover is less than 2 at 0.9x
  3. Working capital is negative -£305m
  4. Declining Altman-Z score of 1.8
  5. Last years full dividend in excess of EPS
  6. Decline in operating margin

Finally these last few statistics are best shown in graphical format (negative years are in red)

capital-discipline

In my view there has been little discipline from management as they have grown revenues through acquisitions (total asset growth); however as is often the case these acquisition have not turned into larger profits as the bottom line (EPS) has taken a dive; the declining levels of Return on Assets (ROA) also show that the assets the firm has are not being as effectively used as they were 10 years ago.

 

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