Acquisitions Fuel 15% Rise in Sales for Capita


LONDON -- Capita (ISE: CPI.L) , the U.K.'s largest outsourcing business, wants investors to know it sees only opportunity ahead. Despite the black eye given to the industry by fellow outsourcing firm G4S's Olympics debacle, Capita thinks government austerity measures mean big business in the years to come.

While all of the revenue growth in the first half came from companies Capita has acquired in the last year -- as opposed to expanded contracts for its previously existing businesses -- the company's attrition rate (contracts that expired and weren't renewed) dropped from about 7% in the first half of last year to 5% this year. Additionally, Capita secured a record 1.3 billion pounds in new contracts in the first half of the year and management expects the company will see organic growth of 3% for the full year.

Even as things appear to be turning around for Capita's core business, management is not backing away from its acquisitive nature. Through the first half of the year the company made 10 acquisitions and it expects to spend nearly all of the 271 million pounds it raised in April through the issuance of additional shares on acquisitions this year.

Things may be improving at Capita, but I personally worry about paying 17 times earnings for a company with a 4.4 billion-pound market cap struggling to grow without acquisitions and a balance sheet that is weighed down by 1.5 billion pounds in debt compared to operating profits around 450 million pounds over the past 12 months.

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Nate does not own shares in any of the companies mentioned. The Motley Fool has adisclosure policy.
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