Questor share tip: Capita now a buy on growth expectations The mantra from all the major outsourcers during the gloom in the credit crunch years was that austerity presented an opportunity as governments tried to cut costs. Over the last two years managers at these businesses have been saying that these contracts would start coming through in 2012 and accelerate into 2013. This appears to be coming to pass. Indeed, research published by YouGov earlier this year suggested that councils planned to outsource a third of all their services by 2015. Although the report noted that there were political concerns acting as a barrier to outsourcing, 81pc of councils surveyed said such moves had been successful. A similar number also believed that it had a role to play in achieving their cost-cutting targets. This has also been borne out in Capita's contract win record since the start of the year, where all the major new contracts have been from central or local government. These include a contract with West Sussex to deliver support services such as payroll and procurement, worth £154m, and a £500m Army recruitment deal. Other contracts have been signed with the Department for Work and Pensions and North Tyneside Council. Management also says there is a good pipeline for private sector work coming through. The pipeline also looks strong - despite hundreds of millions of pounds- worth of orders being translated into contracts this year, the amount of prospective new contracts stands at £4bn, compared with £4.1bn at the interim stage. However, there was some downbeat news on margins, which are likely to be 45 basis points lower in the year. This is five basis points lower than previous guidance. However margins were at a record level during 2011. This margin fall is due to additional costs associated with acquisitions and the start-up cost of new contracts. This means the margin decline is not a "structural" problem with the business and should probably not be interpreted as a long-term issue. The analyst community is split on their view of Capita's prospects. Of the 24 City scribes covering the shares, nine say buy, eight say hold and seven say sell. The average price target of the 12 analysts monitored by Bloomberg is 756p, just 5pc above the current share price. Questor is now reassured that growth is coming through - and is more in the bull camp than the bear. This column has had a hold rating on the shares for some time but now feels more confident about the company's prospects. Therefore, trading on a 2012 earnings multiple of 13.4 times falling to 12.8 and yielding a prospective 3.5pc next year, the rating is upgraded to buy.