It doesn't surprise me one bit that Capita (LSE: CPI) has plummeted again in Thursday trading, reflecting a frosty response to half-year trading details.
The support services play was last 10% lower on the day and dealing at its lowest since mid-June, and I reckon investors should be braced for further pain as market conditions steadily worsen.
Capita announced that revenues dipped 1% between January and June, to £2.13bn, while pre-tax profit clattered 26% lower to £28m.
The company chalked up just £403m worth of contracts in the period versus £879m in the same period last year, reflecting a quiet market. This overshadowed news that Capita's win rate for major contracts had improved to one in two in the first half.
The business noted that "the market for major transformation contracts has remained subdued in the public sector to date in 2017," and this was also evident in a meaty drop in its bid pipeline -- this fell to £3.1bn in the six months, from £3.8m a year earlier.
Capita's share price had performed pretty resiliently in 2017 up until today's results, bouncing from December's 10-year troughs as the UK economy has arguably performed better than expected following last June's Brexit vote.
But with political uncertainty in the UK worsening, the domestic economy cooling, and Capita's turnaround strategy still having plenty to prove (it is still seeking a new chief executive following the resignation of Andy Parker in March), I reckon there is plenty of mud in the system that should keep driving the firm's share price through the floor.
The City expects earnings to slide 9% in 2017 but to rebound next year with a 4% rise. I am less-than-convinced by next year's prediction, however, and a forward P/E ratio of 11.1 times fails to reflect Capita's high risk profile in my opinion.
Too much metal?
I am also less than impressed by the earnings outlook of Antofagasta (LSE: ANTO) owing to the long-term fundamental questions hanging over the copper market.
Appetite for 'Doctor Copper' has improved over the course of the past year, supported by the decline in the value of the US dollar -- thus making it cheaper to buy greenback-denominated commodities -- as well as a strong raft of economic data coming out of China. These factors drove copper values to multi-year highs above $6,900 per tonne earlier in September.
But the metal has crashed lower more recently as manufacturing surveys from Beijing have disappointed, and data from the London Metal Exchange has shown a steady increase in copper held in official warehouses. In my opinion copper's stellar run over the past 12 months comes at odds with the true supply/demand picture right now, a situation that could continue to worsen as global output ramps up.
City analysts expect Antofagasta to report a 67% earnings decline in 2017, not a huge surprise given copper's healthy price ascent. But I believe next year's 8% estimated improvement is on much shakier ground.
And I do not believe the worrying supply outlook is reflected in Antofagasta's forward P/E ratio of 22 times. I for one would consider selling the company right now given the strong possibility that copper values could extend their recent downtrend.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.