Investment: Capita seeks growth in human resources

CAPITA, the outsourcing group, is targeting the human resources and education sectors for expansion as it attempts to maintain its phenomenal growth record.

Rod Aldridge, Capita's executive chairman, expects large companies to start outsourcing their human resources departments over the next few years as they try to cut costs and concentrate on their main businesses.

Capita is already a major supplier of human resources services to local authorities, where it processes payroll and pensions for employees. In Westminster it has gone even further, taking over the local council'shuman resources department, including the recruitment of staff. Last year, its human resources division accounted for 19 per cent of revenues.

Mr Aldridge said private companies had so far been reluctant to hand over control of sensitive areas such as recruitment to third-party suppliers. But he predicted that: "The contracts will come as confidence increases."

Few are willing to bet against him. In the late-1980s Capita pioneered outsourcing in local government by taking over the running of information technology departments. From there it has moved into areas such as property services, administration, and training - each time spotting the new opportunity ahead of most of its rivals. "Human resources is an extension of their services," says Ian Jermyn, an analyst with Credit Lyonnais Laing. "They started with IT and each time they've graduated up the outsourcing curve."

This, combined with the overall growth in outsourcing, has propelled Capita's profits from pounds 1.5m in 1989 - the year the company floated on the stock market - to pounds 27m last year. And there is no sign of growth slowing. Figures for 1998, released yesterday, showed profit growth of 48 per cent on turnover up 38 per cent to pounds 238m.

During the year, Capita won contracts worth pounds 270m, a 63 per cent increase over 1997. And yesterday it won another - a pounds 10m, five-year contract to manage safety certification for contractors working for Railtrack.

Capita took another step into a new area yesterday when it revealed that a consortium of which it is a member had been approved to train UK teachers in the use of IT as part of a pounds 230m government-funded scheme.

Mr Aldridge said this was part of a wider push into the education sector. "All the ingredients are there," he said, although he added that the company was not interested in taking over the running of underperforming schools.

Capita shares, which had risen strongly ahead of the results, dipped 21p to 640p on profit-taking yesterday even though analysts upgraded their forecasts of 1999 profits to pounds 33m. On a forward earnings multiple of 58, the shares look expensive. But analysts said that with a solid order book, good growth prospects, and little to fear from an economic downturn, the shares remain a solid hold.