Shares in Capita (LSE: CPI), the outsourced management services provider, have plunged around 55% since September due to a profit warning in September and another last week.
However, I think there may be an interesting investment opportunity unfolding here because, despite operational challenges across the business, the directors plan to maintain the dividend as the company executes a turnaround plan.
Simplification and concentration
As well as carrying out a business review, Capita plans to dispose of its asset services division and a number of other non-core businesses. The sales should boost the balance sheet and allow a refocus on the core activity of providing customer and business process management services.
Far from floating dead in the water, I think Capita looks poised to grow from here.
Simplification and concentration are almost always good things and I'm encouraged by chief executive Andy Parker's comments: "In recent months, we have reviewed our management structure, operating model, business portfolio and our leverage to ensure we are in the strongest position to support future profitable growth."
Cost-cutting is top of the agenda and Capita could emerge from a period of volatile trading as a leaner organisation focused on its core strengths. Andy Parker reckons Capita's long-term prospects remain robust despite short-term headwinds. This a message that grabs my attention. A blend of temporary problems and a pukkah long-term outlook can result in attractive entry prices for shareholders.
The dividend stands firm
Capita expects trading in 2017 to come in around 2016 levels, which is better than a decline. The dividend in 2016 is unchanged from last year but the firm expects organic growth to drive dividend increases down the road.
At today's share price around 474p the dividend yield runs at 6.7%, which is handy to collect as we wait for a turnaround in business. However, if Capita's future seems too uncertain, you may be more interested in integrated producer/broadcaster ITV(LSE: ITV).
Since early 2016, ITV's shares have sunk by 34% but unlike Capita trade remains strong. In its November statement, the firm said it expects 2016's full-year results to show double-digit revenue growth in its online, pay and interactive services, and double-digit revenue and profit growth in its ITV Studios business, driven by acquisitions. Overall, it thinks 2016's earnings will be broadly in line with the previous year, which probably means a little bit down.
ITV doesn't strike me as a company on its knees. The directors are keeping a tight lid on costs and reckon the firm will achieve £25m of overhead cost savings for 2017. They say a strong balance sheet and robust underlying cash flows provide the flexibility to invest in the business and to deliver returns to shareholders, which implies that the dividend is safe and could be set to rise from here.
Today's share price around 183p means the forward dividend yield runs around 4.5% for 2017, which looks attractive considering its potential to grow further.
The Motley Fool analysts have pinned down another opportunity after shares went soft for this company during 2015. This firm pays a dividend north of 4%, which is covered well by projected earnings. The directors have pushed the dividend higher for several years and that situation looks set to continue.
Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has recommended ITV. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.