Like billionaire investor Warren Buffett, I’m at all times on the hunt for prime worth shares to purchase. And Capita (LSE:CPI) — whose share price has soared on Tuesday (9 July) — appears like a cut price primarily based on present revenue estimates.

The outsourcing big has rocketed in worth after asserting a transformative asset sale. However at 18.8p per share, it nonetheless trades on a rock-bottom ahead price-to-earnings (P/E) ratio of 6.4 instances.

So ought to I add the shares to my portfolio right this moment?

Massive sale

The small-cap firm gives a variety of outsourcing {and professional} providers to the non-public and public sectors. These providers embrace working name centres, executing human sources and accounting features, offering sofware and IT infrastructure, and supplying enterprise consultancy.

Its share price surged on Tuesday after it introduced the sale of its Capita One software program enterprise for £207m. The division mainly gives native authorities and housing associations with the instruments to maximise revenues assortment and reduce prices from their operations.

The sale to MRI Software program is predicted to finish in the direction of the tip of August, earlier than which period Capita will obtain a £4.8m dividend from Capita One.

Capita mentioned that the disposal “follows an analysis of sure actions… that aren’t core to the group’s future technique“. This consists of standalone software program providers similar to these supplied by its soon-to-be-divested unit.

Beneath stress

The sale will give the stability sheet an enormous enhance and assist it higher meet its revised progress aims. The enterprise — which has a market capitalisation of £316m — had web debt of £545.5m as of December.

Capita’s been a catastrophe zone for buyers over the previous decade, its share price tumbling 98% in that point. It collapsed following the onset of Covid-19, and has didn’t reclaim its earlier heights.

The agency’s been a sufferer of surging prices because it’s grow to be bigger and more and more inefficient. It was additionally hit by an enormous cyberattack final March that noticed hackers acquire buyer information from round 90 organisations.

In addition to inflicting reputational injury, the assault resulted in £25m value of prices that pushed Capita additional into the pink. On a pre-tax foundation, it swung to a lack of £106.6m in 2023 from a £61.4m revenue a yr earlier.

Excessive danger

Final yr’s impolite awakening has prompted it to embark on an enormous transformation programme. It set a £100m cost-cutting goal in March. And final month it introduced a big restructuring that may see it focus on areas like public providers and get in touch with centres.

Judging by dealer forecasts, these steps may make the enterprise one of many London inventory market’s hottest progress shares. Earnings are tipped to leap 74% yr on yr in 2024. And rises of 33% and 23% are predicted for 2025 and 2026, respectively.

I’m not satisfied by these electrifying estimates, nonetheless. And neither is the market, which in flip explains the low valuation on Capita shares.

It’s not a great signal that revenues dropped 9% throughout January-April resulting from contract losses and weaker contract exercise. The fallout of final yr’s information breach may very well be vital. And there’s nonetheless a lot uncertainty over Capita’s transformation plan.

So on stability I’d relatively search for different worth shares to purchase proper now.