Jan 30 2013

Harrow Council’s Out-Source Provider in the Spotlight

capita_logoCapita is Harrow Council’s major out-sourcing partner yet the FT suggests that: “Capita’s returns on invested capital have been deteriorating since 2007 and regular acquisitions appear not to have helped, suggesting a slower-growth business that deserves a lower valuation, the broker said.”

And, further, that “recent government initiatives such as promoting open-source computing and shared ownership of services look likely to limit medium-term growth rates” and, over all, “A reduction in the growth rates used to test acquired goodwill in Capita’s 2011 annual report “suggests to us that management also recognises that Capita’s best days for growth are behind it”, said Canaccord, which put a 650p price target on the stock.”

It is also interesting to note that the Council’s IT out-sourcing to Capita has cost well over £1m a year more than the former in-house provision, whilst an alternative “open-source” option with Google was initially explored but abandoned in favour of Capita by Harrow has been pursued by neighbouring Conservative-run Hillingdon Council, a tie-up that is saving Hillingdon well-over £1m per year. Given that £1m roughly equates to 1% on the council tax, Labour’s 2% council tax rise effectively stems from the net cost of going with Capita over Google. Are Harrow council taxpayers effectively helping to shore up Capita’s share price?

Source(s): Harrow Conservative Group and Financial Times, London (a PDF copy taken on 30.01.2013 can be downloaded here).

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1 comment

  1. John Clement

    An independent audit (Fraud squad?) is needed of this council as they have so many deals with businesses and developers which are wasting millions and are clearly not in the public interest in terms of either cost effiiency or provision of service.

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