SSP taps investors for third time in a year, and Capita announces disposals as turnaround enters its latest phase

“It was all quiet on the Western and Eastern front with markets across Europe and Asia barely moving on Wednesday,” says Russ Mould, Investment Director at AJ Bell. ‘Investors were waiting patiently for the Federal Reserve’s latest meeting, which is expected to see the central bank upgrade its forecasts for the US economy.

“The Fed seems content to keep monetary policy ultra-loose in its attempts to let the economy run hot as it recovers from the effects of the pandemic. Fixed-income markets have become a little more nervous, but equity markets seem happy about it so far.

“Markets will therefore want to know what any upgrades to US economic expectations mean for monetary policy and when interest rates might go up. Policy changes aren’t expected at this meeting, but the Fed’s comments will be closely watched for any clues as to what it might do over the next two years.

“The FTSE 100 dipped 0.3% to 6,784. BT was the top riser after its mobile and internet service provider EE won a new 5G spectrum in an auction. That will help BT to grow its position as the UK’s market leading 5G network.”

SSP

“SSP is asking investors for more cash for the third time since the pandemic started, showing just how brutal the crisis has been for some companies.

“Business has dried up for its cafes and restaurants in airports and train stations, forcing the company to go cap in hand and ask for more funds until travellers return. It raised £216 million a year ago going into the crisis and then a further £11 million in June to offset the costs of paying a dividend.

“Now it wants £475 million to give it several options depending on how the year plays out. The cash should provide a buffer if the pandemic goes on longer than expected.

“A lot of people are desperate to get back on a plane for a week in the sun and others want to get on a train see friends and family. However, much uncertainty remains over when travel restrictions will be lifted in the various countries in which SSP operates. Then there is the question as to whether a many people will feel confident mixing in crowded spaces so soon after the crisis.

“Assuming wings get back in the sky and wheels start to turn again later this year, SSP would then have some money left over from the fundraise to invest for its future.

“Importantly, there are some clues in SSP’s statement which suggest the rebound in the travel sector could take longer than some people might think. It doesn’t expect passengers to approach pre-Covid levels until its financial year ending September 2024. That might explain why it needs to strengthen its finances now to help see it through a potentially slow recovery.

“At some point we’ll all be buying a croissant and a coffee while waiting to go on a journey; and it’s almost certainly a ‘when’ not ‘if’. SSP just cannot have full confidence in when that will be.”

Capita

“The task facing Capita and its chief executive Jon Lewis as the latest round of its restructuring is announced is to prove the besmirched outsourcing model still has merit.

“Some people might question why it will have taken years of blood, sweat and tears under Lewis just to get the business to the point where it will be sustainably generating cash – a target for 2022, half a decade since the ‘Mr Fix-it’ specialist’s tenure began.

“High profile failures like Carillion have helped sour sentiment towards outsourcers among investors. Many of these businesses got too big and unwieldy and pursued growth for its own sake without checking to see if the contracts taken on were even profitable.

“The reputation of the outsourcing sector from a customer perspective is also hardly a glowing one – with examples of malpractice and taking taxpayers’ money on poorly performing public sector contracts contributing to a negative public image for the industry.

“Unsurprisingly a big part of Lewis’ plan has been to simplify and streamline Capita and focus on higher margin and tech-focused work. The disposal programme unveiled today is just the latest step in that direction.

“However, the process has often felt like running through sand and Capita is still being dragged down by historic issues. It also still needs to come up with a sustainable financing plan for the business, the implications of which for shareholders remain uncertain.”

These articles are for information purposes only and are not a personal recommendation or advice.