Panic Spreads As Another UK Outsourcing Firm Begins to Teeter

“Not another Carillion,” says UK government to soothe frazzled nerves, as entire industry is teetering.

Since the sudden downfall of the British infrastructure giant Carillion two weeks ago, investors’ nerves in London are frayed. And short-sellers, scanning the horizon for their next prey, seem to have found it.

Its name is Capita. It is one of the UK government’s biggest outsourcing firms with contracts to provide services to government entities, such as NHS cleaning, school dinners, and prison maintenance. It has 70,000 employees in the UK, Europe, South Africa, and India.

On Wednesday, its shares tumbled 47.5% to a 15-year low after its new CEO, Jon Lewis, slashed profit forecasts, announced plans to tap the capital market for £700 million, and suspended a dividend that was worth more than £200 million to shareholders last year.

On Thursday, the rout continued , with shares dropping a further 13%. On Friday, shares bounced off a tiny 2.3% to close at 162.3 pence, down 77% from June 2017 and down 88% from July 2015.

In a desperate bid to calm market nerves at the height of Wednesday’s rout, the UK government released a statement insisting that Capita was “not another Carillion.”

But whatever the government might say, there is a striking resemblance between the two companies:

Like Carillion, Capita is massively dependent on government contracts. In the last two years alone it was awarded 226 public sector contracts — 10 times more than Carillion — making it the biggest supplier of local government services in the country, according to public sector data provider Tussel.

Like Carillion, Capita is massively in debt, with an estimated £1.1 billion of funds outstanding

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