Broker snap: Life beyond public sector for Capita

13th Jul 2010 11:40

Impending public sector spending cuts have made many investors wary of business process outsourcing companies but Panmure Gordon has taken a contrarian view with Capita, one of the biggest operators in the sector and upgraded its recommendation on the stock."While we acknowledge that the timing of big-ticket spend within central government (10% of revenues) remains uncertain in the near term, the business process outsourcing (BPO) market elsewhere has not gone away. Indeed, the private sector is now showing signs of recovery, with 'decision-making paralysis' potentially easing," the broker suggests.Ahead of the company's interim results on 22 July Panmure Gordon has bumped up its price target for Capita from 750p to 885p and that has prompted a change in recommendation from "hold" to "buy"."We are raising our target price on conviction that organic growth profile will improve from here," the broker said.