Friday, 23 November 2012

Why I bought Capita shares

Don't believe the hype. The Barnet Eye has a confession to make. I used to own Capita shares. I actually own shares in quite a few organisations and have bought and sold many over the years. A mate of mine used to be a director of the company (he left many years ago for bigger and better things). When Ken Livingstone was first talking about the congestion charging project (which Capita implemented) Capita were the implementers of choice. I was interested in the technology and whether it would work. As he was a director, I asked him "what if the technology doesn't work? It could cost Capita a fortune". My concern (as an engineer) was that new things often don't work. he put me right "Capita don't do projects they lose money on, whatever happens we'll do alright out of it".

So I did some sums. It struck me that if Capita "did alright out of it" that made their shares rather cheap. Now as I supported the concept of congestion charging, I thought this was not only a good financial bet, but an ethically sound bet. I had a couple of grand burning a hole in my pocket, so I spent it on shares. I bought them for £2.45 a share.

In November 2009, I sold them. I had become increasingly worried about the ethics of owning shares in a company associated with Outsourcing and One Barnet. I felt it was hypocritical to continue owning the shares  whilst writing about the evils of outsourcing. The shares were trading at £7.61 you can do the maths, but I did very well out of the deal. Before you ask, I don't feel guilty and I believe share ownership is not  a bad thing (although I view it as a benign form of gambling).

Three years later, I see that Capita are trading at £7.31 a share. Fortunately for me my attack of ethical sensitivity has served my pocket rather well. This column does not give financial advice, but |I find it interesting that the shares have flatlined since they got involved in One Barnet. Are the two things connected? I have no idea, my friend has long since left so I don't have anyone to ask. It is interesting to see that the markets have not seen the Barnet news in a positive light. On October 1st the company reached £7.88. Today they languish at £7.35. The markets don't lie. The contract is worth £320 million according to various newspaper reports. I would have expected a big pickup if the news was viewed in a positive light.

You can check the facts out here on the Reuters website.

Interestingly, the other Bidder, BT don't seem to have had a negative reaction at the news of the loss of the contract.

People buying shares generally don't part with good money without doing a bit of market research, If I had a couple of grand to invest today and my friend had said "Capita just had a big contract win in Barnet", I'd probably have googled "Capita Barnet". I've got to say that there is little in this search which would make me buy Capita shares. You may take a different view.,or.r_gc.r_pw.r_cp.r_qf.&fp=d4627b57ea6b812a&bpcl=38897761&biw=1280&bih=909

It seems that Market sentiment seems to agree. Reuters have a page giving the latest analysts opinion. These seem to indicate that analysts view of Capita has significantly hardened.

Three months ago only one analyst had Capita registered as a sell, now it is three. Five analysts had Capita registered as a Buy, this has dropped to four. Six had registered the shares as "outperform", this has dropped to five. Now all of this is purely opinion. I just find it rather enlightening that the markets don't seem to be having a strongly positive response to One Barnet or the award. I've said all along that Barnet is a media hotspot and the risks for reputational damage are far higher in Barnet. If anything goes wrong  it will make the national TV, Radio and press. Rather sadly for Capita if it all goes well, it will just be ignored. In other words, there is little reputational upside. If I were a Capita shareholder, I'd be a bit "squeaky bummed" right now.

I would caution Capita Shareholders to consider what happened to G$S shares when they got involved in a project with a High Media profile

Now clearly Capita is a massive company and the Barnet contract is a small part of equation, you can see the scale of the company

The trouble is that in terms of potential for bad press coverage, Barnet is probably as big a risk as all of the other public sector outsourcing projects put together. In terms of demographics, more people working in Newspapers, media, Television and radio live in the London Borough of Barnet than anywhere else. many of these are senior executives, who have the power to say "run with this story".

That is why I won't be reinvesting any time soon.

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