Capita shows strong contract wins

Capita: profit growing slower than sales

Capita has won £1.89bn worth of contracts so far in 2007, already beating the £1.37bn total from last year, but profits are slow.

Income is growing, but at a slower rate than sales, said chief executive Paul Pindar in yesterday's trading statement. Capita's share value dropped 1.5 per cent, following the announcement.

The company's final results are due to be released on 28 February 2008.

Capita blames weak profit increases on its strategy not to allow short-term margin targets to hold back market share growth, said Douglas Hayward, research manager at analyst firm IDC.

"Capita can get away with this, at least for now, because it has excellent operating margins for a Western-based player, and it is still growing margins rather than diluting them," said Hayward.

"But it will be a different story if it actually has to accept margin dilution.

"Most investors are wary of margin dilution and don't like to hand management a blank sheet for funding land grabs with sacrificed profits, so Capita is treading a fine line here: witness the investor reactions."