The fortunes of companies in the public sector outsourcing sector have experienced a dramatic fall from grace. Prior to the financial crisis of 2008 and the recession that followed, these companies were the beneficiaries of lavish government spending and a growing trend in getting the private sector to do more of the jobs that central and local governments used to do. For many years, the big outsourcing companies were seen as bankers to keep on growing their profits and returns to shareholders. That has changed.
Serco (SRP) and G4S (GFS) have seen their business strategies come a cropper, while Capita (CPI) and Mitie (MTO) have both issued big profit warnings in recent weeks. What was once a sector that prided itself in providing investors with highly visible and predictable future profits is now the subject of considerable uncertainty.
What are investors to make of the current situation? Is it a sector now offering potential bargains or is it still too soon to buy in?