Capita – glass half full or half empty?

(We're pleased to feature a guest post from Ian Makgill of GovMark, who we featured here and provide intelligence on public sector suppliers and markets. Their report on the temporary labour market in local government is free to download here).

On 14th Feb the Army announced that Capita had retained their recruitment contract, as well as the IT services contract for the Air Force and the Navy. The group's shares rose 2.7% on the news of the deal, which is thought to be worth £500m over ten years.  They also last week won the Government contract to provide civil service training, estimated to be worth £100M+. (Editor's note - we will return to this deal at a later date).

Despite this David Brockton, an analyst at Esperito Santo has rated Capita as 'sell' on the expectation of tighter margins and increased competition.

There are certianly some supporting arguments for that view. We've been digging around in some data on agency staff spend in Central Government and found a significant fall in spend from DWP. Their spend with Capita Resourcing has fallen by around 75% from £39m per annum in financial year 2009/10 to an estimated £9m in 2011/12.

Capita also had bad news last spring when they failed to win a spot on the coveted MSTAR framework, (a fast growing Local Government framework which has captured 17% of the market in less than six months) and things must have been looking bleak for them before the Army made their announcement.

There's something else to take note of here too. Assuming that DWP's agency spend hasn't been shifted to a separate outsourced contract, then 1% of all the procurement savings in Government seems have come from reducing the spend in one category in one department. Whilst this is admirable, there must be a concern that this sort of opportunity will not be available to procurement officers in 2012/13 and onwards, which only backs up the National Audit Office's view that the heavy lifting is yet to come in order to hit efficiency targets.

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