Outsourcing deals could boost FTSE by £20bn

Companies that announce outsourcing projects to the market can increase their sector share price by almost 2% compared with those that don't, adding an estimated £20bn of additional shareholder value to the FTSE all-share market index.

Link: LogicaCMG backs Wales for outsourcing success

A study carried out by LogicaCMG and the Centre for Economic and Business Research, entitled 'outsourcing for corporate value', analysed historical stock market data of companies within seven sectors that announced outsourcing deals against those that had not.

It revealed that after four weeks of outsourcing deals being announced, companies that had stated their outsourcing projects to the market performed on average 1.7% higher in stock value against those that had not.

Announcing the research findings this morning, Guy Warren, managing director of IT services firm LogicaCMG said that with UK market capitalisation in excess of £1,300bn this represented a 'significant' equivalent of £20bn worth of additional shareholder value.

'There is a good chance of increasing company profits by carefully announcing outsourcing deals. Good companies also outsource and there is a significant opportunity for companies and the economy to capitalise on outsourcing.'

The report discovered that in five out of the seven sectors, companies that outsourced also outperformed their peers and boosted share price. The retail sector benefited the most, with a 10% leap in share price performance one month after announcing outsourcing deals. The leisure sector reached just over 6%, while the energy and utilities industry saw a rise of just under 2%.

The study also analysed the economic value from outsourcing and calculated that if UK companies increased outsourcing by 52% by 2010, over £9.9bn in additional stock market value would be created. LogicaCMG said the UK outsourcing market currently stands at around £250bn and could reach around £370bn by 2010.

Mark Pragnell, managing director of CEBR said that companies that were performing well in the market were 'also outsourcing' and that even the two sectors that were found to be 'underperforming' (telecoms and banking and insurance) had improved after making outsourcing declarations.

Phil Morris, director of consulting at Morgan Chambers, backed up the LogicaCMG findings and said that outsourcing in the FTSE100 generated on average a positive share price movement of 4.9%.