Vince Julier - June 15, 2018
FREĠNAN first examined Capita PLC back in February 2018, shortly after the group announced a suspension of its dividend, a 2018 profits warning and a launch of a £700 million rights issue. FREĠNAN now takes a fresh look at Capita PLC see what the numbers say now.
FREĠNAN used its advanced AI driven analytics platform to create a wholistic and predictive financial model of Capita PLC.
In February FREĠNAN found that Capita’s total operating expense had a relationship to revenue of 1.11 times; that is, for every marginal £1 increase in revenue, total operating expense had increased by £1.11. This relationship was statistically strong and had been relatively constant over the prior 4 years while revenue had grown.
In addition, FREĠNAN found that the relationship between a £1 increase in revenue resulted in an increase in current liabilities of £1.06 and a decline in current assets of £1.38. Both negatively impacted net assets. FREĠNAN’s predictive engine also estimated that shareholders’ equity was likely to decline by £1.1 billion, greater than the announced £700 million rights issue.
These relationships were determined through FREĠNAN’s unbiased, machine learning algorithms, which connect every line item of a financial statement together in a multi-layered way.
FREĠNAN has re-examined Capita PLC given its recently published 2017 Annual Report, its £701 million rights issue, its management actions, and its 13% decline in revenues.
FREĠNAN latest AI driven advanced analytical engine now includes more powerful analytical capability to generate further insights - both in the internal financial workings of a company and also how that company relates to its external environment.
The relationship between revenue and total operating expense, and other financial items, has changed. Now an increase in total revenue by £1 should translate to a total operating expense increase of only £0.9 and make a positive contribution to net income of £0.1. Operating cash should increase by £0.15, while total assets should increase by £0.8. A decrease in total revenue should have the reverse effect.
A latest addition to FREĠNAN’s capability is the ability to examine large quantities of external factors. This new powerful feature aims to give users a greater insight into the external factors that may affect a company’s future performance. For example, Capita’s revenue is most highly connected to changes in GDP and public-sector net borrowings. The future estimate of these ‘influencers’ can be used in the prediction of the future revenue of that company.
In addition, FREĠNAN’s engine now also generates its proprietary ‘predictability’ index. This index gives the reader a statistically relevant measure of the historic accuracy of a FREĠNAN company predictive model. Capita, for example, scores highly on FREĠNAN’s predictability measure, giving a degree of comfort to FREĠNAN’s model accuracy.
FREĠNAN creates individual, unique and predictive financial models for each company it examines, using advanced machine learning and web harvesting, to deliver unbiased, high-quality equity insights for investors, fund managers and researchers. Through our unique and powerful capability, we aim to support the asset management industry to:
• secure your business;
• empower your abilities; and
• protect your margin.