LONDON (AFX) - Support services company Capita Group PLC reported a forecast-beating 24 pct rise in half-year profit, helped by contract wins in a booming outsourcing market, and said it expected the strong growth to continue in the second half and through 2007.
The strong results sent Capita shares to an all-time high in morning trading as analysts prepared to raise profit and revenue forecasts for 2006 and 2007.
The UK company, which runs the computer systems behind London's traffic congestion charging scheme, as well as administering pensions schemes and managing properties, said pretax profit before a share-based charge in the six months to June 30 rose to 92.4 mln stg, from 74.5 mln a year earlier.
After the share-based charge, pretax profit was 88.3 mln stg, comfortably ahead of the average analysts' forecast of 81.8 mln.
Revenue rose 23 pct to 845 mln stg from 687.3 mln, well ahead of the 800 mln stg average forecast.
Capita, which makes about half of its sales from the UK's public sector, hiked its dividend by 29 pct to 2.7 pence per share after seeing good growth across its main businesses.
'There is good visibility of Capita's financial performance for 2006 and the board believes shareholders will be very pleased with the results for the year as a whole,' Capita non-executive chairman Rod Aldridge said in a statement.
'Our businesses are in superb shape to deliver incremental growth and the market for Business Process Outsourcing opportunities continues to be extremely active. The board therefore anticipates delivering strong growth in 2007.'
Aldridge, who resigned as executive chairman in March after questions were raised about a personal loan he made to the Labour Party, confirmed that he will retire from the group on July 31, to be replaced by Eric Walters as non-executive chairman.
Capita, formed in 1984 when it was split from the Chartered Institute of Public Finance and Accountancy, was the biggest riser in the FTSE 100 share index in morning trading. The shares hit an all-time high of 514 pence.
At 12.20 pm Capita shares were up 38-3/4 pence, or 8 pct, at 513-1/2, valuing the company at 2.93 bln stg.
'(Capita's) results look to be strong to us and appear well ahead of our expectations,' said Robin Speakman, a technology analyst at Shore Capital.
'We are likely to be upgrading our full-year 2006 and 2007 forecasts.'
Capita said it had won 806 mln stg in new and renewed contracts in the first seven months of 2006, compared to about 240 mln for the same period a year earlier and 1.1 bln stg for 2005.
Major contracts signed in the past seven months include a 10-year 132 mln stg deal with the BBC and a 475 mln contract with Birminghan City Council to supply Information Communications and Technology services.
'The most important thing is the magnitude of Capita's contracts,' said Michael Donnelly at Bridgewell Securities. 'It points to a buoyancy of the (outsourcing) market and the ability of Capita to close deals.'
'I struggle to see anything significant on the horizon that will knock Capita off course in the near term.'
Capita's bid pipeline -- for bids where it has been short-listed -- was 2.8 bln stg.
In order to reduce costs Capita chief executive Paul Pindar said he plans to expand the company's Indian operations, which carry out work for UK customers.
Capita currently employs about 500 of its 26,000-strong workforce in Mumbai, India but Pindar said he wants to increase the Indian headcount to about 10 pct of the workforce by 2009.
Outsourcing companies are increasing their Indian operations, where salaries for skilled graduates are much lower, to meet growing demand from Western companies for cheap IT and administrative services.
'We are totally and utterly committed to building India as quickly as possible,' Pindar told AFX News in a telephone interview.
The UK's business process outsourcing market, which includes human resources, Information Technology and financial services, is set to grow by more than 10 pct a year over the next three years, according to Charles Stanley.
Pindar said there was still plenty of room for growth in the BPO market market because public and private sector organisations had only outsourced a small proportion of white collar services. nick.huber@afxnews.com nh/ak/nh/joy/nh/joy/nh/abr COPYRIGHT Copyright AFX News Limited 2005. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News. AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited
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