PracticeConsultingOutsourcing boosts share price

Outsourcing boosts share price

Study shows that outsourcing can seriously affect your company's perceived value

Companies that announce outsourcing projects to the market could increase
their share price by up to 10%, creating an estimated £20bn of additional
shareholder value to the FTSE all-share market index, according to research
commissioned by consulting firm LogicaCMG.

Conducted by the Centre for Economic and Business Research, the study,
Outsourcing for corporate value, analysed the historical stock market data of
companies within seven sectors that announced outsourcing deals against those
that had not.

Companies clearly stating the commercial benefits of their outsourcing
projects to the market found that, four weeks after announcing the outsourcing
deal, their stock value performed on average 1.7% higher than those that had
not.

The study showed that in five out of the seven sectors, companies that
outsourced also outperformed their peers and boosted share price. The retail
sector benefited 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%.

Revealing the findings, Guy Warren, managing director of 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. There is a significant opportunity for companies and the
economy to capitalise on outsourcing,’ he said.

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.

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%.

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