Bottom Line: Capita stays confident

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CAPITA, best known for its contract to sell vanity number plates on behalf of the Driver and Vehicle Licensing Centre, is finding that growth is far from painless. An 87 per cent jump in turnover from its computer management and debt collection division resulted in a 6 per cent fall in profits for the six months to June thanks to hefty start-up costs on contracts.

Luckily, consultancy work in the other arm bounced from a sticky 1992 to more than make up the shortfall. That produced an eighth successive period of growth since flotation in 1989.

Capital's interim profits were 15 per cent better than the year before at pounds 2.04m from a 61 per cent jump in sales.

The company is confident enough to promise that the 21 per cent increase in the interim dividend to 2.55p will be repeated at the full stage.

An impressive five-year growth record - profits up on average 38 per cent a year - remains intact, and given the increasing trend towards outsourcing of peripheral activities by local authorities the trend should continue upwards.

Shareholders will be reassured by the company's rock-solid balance sheet, loads of cash generation and by an order book that is three times the size of last year's turnover.

Arguably, however, that is already reflected in a forward p/e ratio of 22 on the basis of pounds 5.4m pre-tax profits for the full year and yesterday's share price of 168p, down 1p.

The multiple has doubled since the beginning of 1991 and all the earnings growth already pencilled in (and a little bit more) is needed to justify it.