Public sector cuts good news for outsourcers says Capita

Bullish outsourcer Capita reckons it will generate more than £1bn in fresh income over the next five years as austerity measures bite, forcing ministries to farm out services to the private sector.

Chief executive Paul Pindar said the annual value of Capita’s outsourcing deals with Whitehall will triple to £600m over the coalition government’s five-year term. Contracts with local governments will double over the period, reaching £1.3bn by 2015, he predicted.

Pindar’s were comments, made after the company posted a 15pc rise in first-half pretax profits to £163m, buck the industry trend.

However many outsourcers and analysts fear sector earnings will be hit as public sector projects are scaled back or scrapped. Cable & Wireless Worldwide raised the alarm on its government contracts, with a profit warning.

Paul Checketts, analyst at Oriel Securities, tips Capita to struggle as public sector contracts diminish in size and number, and group margins shrink from 13pc to the low single digits.