Capita flourishes on outsourcing
The Investment Column
Wednesday 31 July 1996
Yesterday's first half figures, showing pre-tax profits up 14 per cent to pounds 4.6m, were struck from turnover 15 per cent higher at pounds 50.1m. They confirmed that the market for what the jargon terms outsourcing - paying someone else to do a peripheral function so you can get on with your core business - is flourishing.
Capita, which has grown from its roots in information technology, now extends to a wide range of services including running the written part of the new driving test, running all the non-clinical side of an NHS trust hospital, and even administering the teachers' pension scheme.
The company's success partly reflects the underlying growth in the market, which some estimates believe could be increasing at a compound rate of 24 per cent a year. But it is also testimony to Capita's ability to judge contracts well, to price them correctly to win a tender and then to cut costs quickly enough to create a decent margin.
That is no mean feat, especially as the sort of contracts Capita now wins are getting increasingly long and complex. Margins on these large deals are often low in the opening months, rise as operational efficiences are introduced and improve still further as bolt-on contracts are pushed through. In the Isle of Wight, for example, a second NHS trust contract will use much of the same infrastructure as the first one that proved Capita's worth but involved heavy start-up costs.
The good news for Capita shareholders is that the company is operating at record activity levels, with contracts worth pounds 254m signed in the last 12 months. Of that total, contracts to a value of pounds 174m do not start until the second half-year and there is no evidence at all of the prospect of a Labour government stemming the flow of this peculiarly Tory invention.
The bad news, however, is that the good news is well and truly in the price. As ever with fast growing companies, the 20 per cent-plus growth rates possible in the early years become increasingly difficult to maintain as the years roll by. Analysts are forecasting 17 per cent earnings growth this year, followed by 16 per cent in 1997.
That is impressive enough by most standards, but compared with a prospective price/earnings ratio of 25 this year it is perhaps not enough to sustain the share price. The shares have fallen from a high this summer of 380p and still look vulnerable.
- 1 What if 35 Palestinians had died, and 800 Israelis?
- 2 Disney heiress Abigail disowns her share of family profits in West Bank company
- 3 The secret report that helps Israel hide facts
- 4 'Women should not laugh in public,' says Turkey's Deputy Prime Minister in morality speech
- 5 Ross Burden dead: MasterChef and Ready Steady Cook star dies at age 45 after suffering from cancer
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK
Disney heiress Abigail disowns her share of family profits in West Bank company
'Women should not laugh in public,' says Turkey's Deputy Prime Minister in morality speech
Richard Dawkins tweets: 'Date rape is bad, stranger rape is worse'
Ross Burden dead: MasterChef and Ready Steady Cook star dies at age 45 after suffering from cancer
The secret report that helps Israel hide facts
A day in the life of Vladimir Putin: The dictator in his labyrinth
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
Putin is 'thuggish, dishonest and reckless', says British ambassador to US
Were 'Poor Doors' added to mixed developments so wealthy residents don't have to go in alongside social housing tenants?
A new Russian revolution: The cracks are starting to appear in Putin’s Kremlin power bloc
- < Previous
- Next >
iJobs Money & Business
£350 - £400 per day + competitive: Orgtel: Senior Analyst, ALM Data, Halifax, ...
£500 - £600 per day: Orgtel: Java developer - Banking - London - Up to £600/d...
£400 per day + competitive: Orgtel: Liquidity Reporting - Basel III - LCR - Ba...
Up to £50,000 per annum + Bonus + Benefits : Sauce Recruitment: We are repre...