Sunday share tips: Smiths Group, Capita

Smiths Group was a 'hold' for the Sunday Times' Inside the City column as chief executive Andy Reynolds Smith puts his shirt on full-year results from the engineering conglomerate in the autumn.

The group is divided into five divisions: Smiths Medical, Smiths Detection, Smiths Interconnect and Flex-Tek. John Crane makes mechanical seals, couplings and filtration systems; Smiths Medical specialises in catheters, needles, systems for managing airway and temperature and emergency patient transport; Detection's products are sensors and systems for airports; Interconnect's are electronic connections, including cables and wireless; while Flex-Tek provides components to heat and move fluids and gases for the aerospace, medical, industrial, construction and domestic appliance markets. The first two contribute more than a quarter of groups revenues each, detection just under a quarter and the latter two around 10% apiece.

Reynolds Smith was appointed with a growth remit and has been acquisitive in since joining in September 2015. The following year the shares surged 50%, but until the start of April had nothing to show. Interim results in March knocked disappointed the market as profit fell and missed analysts' forecasts. “The time is coming when he will be judged by the measurable impact of his actions — including the purchase of Morpho — rather than presentations,” Investec said. In order to meet the CEO's full year targets, revenues need to jump after slipping 1% in the first half at constant currency levels.

Capita was a 'hold' for bruised existing investors, said Midas in the Mail on Sunday, while for newcomers the recommendion was "hold fire". Shares in the outsourcing group are just off their decade-and-a-half low after January's profit warning that came hot on the heels of the collapse of fellow government contractor Carillion. Last week the company confirmed plans for a £701m rights issue to enable it to carry out a new strategy after a "significant deterioration" in new business wins and business volumes that management said would continue to weigh on profits in 2018. Shares have risen 40% in April to just above 183{ alone after falling below 130p last month.

The group, which provides public and private outsourced services including back office IT, call centres and administrative tasks. Contracts range from collection of the BBC licence fee collection and London congestion charge, with other clients including the most functions of the London Borough of Barnet, an IT recruitment system for the Army, with customer services for Marks & Spencer and O2.

However, Capita has a lack of focus that new chief executive Jon Lewis has promised to change. After his predecessor sold off the Capita Asset Services division, Lewis plans to simplify the business by reducing the number of markets it serves from 40 to five, while increasing its international focus. He expects pre-tax profits of £270-300m this year, before the costs of restructuring. Lewis and another director this week bought £300,000 of shares, while Neil Woodford has a historic 10% stake.