Capita signals outsourcing rebound as sales pick up

Capita flagged up a change in the outsourcing sector's fortunes yesterday, reporting a "busy sales period" only months after spooking investors with a warning on the impact of the Government's public-spending cuts.

The company – which runs TV licensing for the BBC and provides a criminal records service to the Home Office – said it had performed "solidly" over the first four months of the year as it drew steam from an uptick in the "appetite for outsourcing, particularly across the life and pensions and local government markets".

The decidedly upbeat announcement marked a step-change from the company's warning last November that pressures on public spending were hitting growth. But that was then. Yesterday, it said that "in the public sector, the number of new tenders across our areas of expertise is now at the levels enjoyed prior to May 2010 elections and the public sector spending freeze".

"The most active public sector markets are local government and the defence market," it added, noting that opportunities were also "beginning to emerge" in the central government market.

The business has signed seven new contracts since the beginning of the year, including a mandate to provide IT outsourcing for English Heritage and to administer revenues for the London Borough of Brent. Capita is also on shortlist for several contracts, including one to administer army recruitment for the Ministry of Defence.

The company was careful not to overstate the pick-up, however, saying only that it was "well placed to achieve steady revenue growth" this year. As highlighted in the past, it added that turnover growth would be modest in the first half of this year "due to quiet sales activity in 2010 and the continued impact of public-spending cuts on a small number of our trading activities", with better progress expected over the final six months of the year.

Analysts welcome the update, with Numis repeating its positive stance and saying it augured well for a "return to good organic growth in 2012".