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5 "Tells" that the Stock Markets Are About to Reverse

Capita the Next Carillion Seeks Emergency £700mln Funding to Prevent Collapse

Companies / Corporate News Feb 01, 2018 - 11:00 AM GMT

By: Nadeem_Walayat

Companies

Barely a fortnight on from the spectacular collapse of Carillion, now another PFI outsourcing corporate giant Capita finds itself teetering on the brink, seeking emergency funding of £700mln in the form of new share issuances to buy itself time whilst trying to reassure investors that it is not the next Carillion. However, as was the case for Carillion, the Capita stock price says it all about the distressed state of this corporation that has seen its stock price CRASH by over 70% over the past few weeks.


At the time of Carillion's collapse, I warned that Carillion was just the tip of the PFI outsourcing ice-berg in which respect the whole sector was likely insolvent as was the case for Britain's banking sector some 10 years earlier, where the crippling factor is once more DEBT including unfunded pensions liabilities.

16 Jan 2018 - Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco....

Whilst many may argue that Carillion was a special case, but the reality is that in terms of published accounts, Carillion's profits and turnover was deemed to be one of the better performing PFI contractors, banking profits of £155mln against a loss of £200mln for sector giant Balfour Beatty whilst the likes of Amey trail with a loss of £26.5 million on turnover of £2.5billion.

As is usually the case the crippling factor is DEBT, and where Carillion's demise is concerned that debt was as a consequence of spiraling costs and growing pensions liabilities which are a hallmark of PFI contractors and other corporations at risk of bankruptcy. DEBT and PENSIONS liabilities are literally the corporate ticking time bombs under the hood of many major corporations from giant retailers such as TESCO, to the PFI contractors such as Carillion and dozens more in the PFI sector.

Capita just reinforces my conclusion that the whole PFI sector is insolvent. Furthermore Capita's plans to issue shares to raise £700 million is unlikely to succeed given the the 70% collapse in the companies value which now puts the company on a market cap of just £1 billion. So how is Capita going to raise £700 million when its stock price is in free fall? Furthermore the companies debts and unfunded pensions deficit estimated at £1.6 billion now far exceeds the companies stock market valuation of £1 billion and falling on a daily basis.

The bottom line is that it is highly likely that Capita is the next Carillion, a zombie corporation that just does not know that it is dead, which does not bode well for Capita's 50,000 UK workers. And where the government is concerned this once more illustrates the folly of concentrating outsourcing contracts to a list of a few giant preferred bidders rather than spreading the risks amongst many smaller companies.

So whose going to make next weeks headlines? Well the stocks in the PFI that got hammered the most following the Capita news were Babcock, Mitie and Serco, so expect one of these to be next to make the outsourcer in crisis headlines.

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2018 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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