Capita Plans Purchases as Customer-Service Management Grows

Capita Plc, the services provider whose biggest job is running call centers for mobile-phone operator O2, sees similar customer relations work as its strongest growth market and plans more acquisitions.

Capita spent about 240 million pounds ($409 million) in the first half to acquire 10 businesses, and could afford to invest another 100 million pounds this year as it builds capabilities in areas including customer relations and financial services, Chief Executive Officer Andy Parker said today in an interview.

“Telephone sales activity is probably our single biggest area of growth,” Parker said. “The area that we see with the biggest growth potential is around customer management.”

The drive for acquisitions comes as Capita reported first-half revenue that beat estimates and said its major contract win rate improved to more than two in three jobs sought, from two in three last year. The London-based company’s offerings run from IT support to health-care administration. In customer services it won a 10-year, 1.2 billion-pound contract with Telefonica SA’s O2 last year, and in March got the nod to run an online contact center for John Lewis department stores.

Revenue gained 14 percent to 2.07 billion pounds in the first half, from 1.82 billion pounds a year earlier, Capita said today. That surpassed the 2.01 billion-pound average of eight analysts’ estimates compiled by Bloomberg. The value of outstanding contract bids rose to a record 5.7 billion pounds from 5.5 billion pounds as of February.

Share Performance

Capita shares rose as much as 4.2 percent, the biggest gain in almost five months, and were up 4 percent at 1,201 pence at 3:27 p.m. in London. That extended the gain this year to 16 percent, giving the company a market value of 7.94 billion pounds.

Graham Brown, an analyst at Canaccord Genuity, raised his recommendation on the shares to buy from sell, “reflecting the improving prospects the business has demonstrated” with better than expected organic growth and more work ahead.

“Capita continues to demonstrate high-quality execution,” Brown said in a note today, with “scope for further acquisitions” among reasons to favor the stock.

Capita, which competes with companies including Serco Group Plc and G4S Plc, earns about 97 percent of revenue in the U.K., and plans to keep the focus there, Parker said in the interview. One exception is Germany, where some of Capita’s clients have owners or subsidiaries. It completed its purchase of Tricontes GmbH, a customer services company based in Munich, on July 1.

‘Niche Skills’

“We see acquisitions as a really important and really successful way of helping us enter new markets and gain experience of markets, and also extend our capabilities and bring in some very niche skills,” Parker said. “There is an opportunity in that German customer management space, but I would reiterate that the U.K. remains our main focus.”

Parker, 45, also sees potential in financial services, where Capita is buying Crown Mortgage Management Ltd., a processor of residential and commercial loans, for 7.5 million pounds.

There is less opportunity at present in the health market, Parker said. “It’s been very weak and it is not one that we believe will see a lot of activity in the near term.”

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