Outsourcing giant Capita is 'on the road to recovery' according to a report by market experts.

City-based data specialists Tussell say the decline of more than 80% in the company's share price over the last three years 'masks the green shoots of recovery'.

In April the company announced a major reorganisation after reporting £500m losses and £1.7bn debts.

It followed the collapse of construction outsourcer Carillion with £7bn of liabilities, which left many local authorities forced to find alternative contractors.

Tussell says Capita is now in a strong market position with lower risk, more predictability and better management, and is currently winning around 16 contracts a month.

But it warns there is still the risk of another major outsourcer going bust.

Figures supplied to LocalGov by Tussell show a huge drop in the amount of business being done by councils with Capita.

The value of its local authority contracts fell to £32.2m in the first six months of this year compared with £161m in the same period in 2016.

For the company this was partly offset by increases in business with central Government and other public sector bodies.

Tussell's data shows that while the number of new public sector contracts won by Capita has declined year-on-year, their value has doubled on average.

In a report for Government departments the analysts say too many outsourcing contracts have been agreed where the risks were not fully understood and the resulting financial stress is 'continuing to threaten several large outsourcers'.

Tussell's founder Gus Tugendhat told LocalGov: 'In the first six months of 2018, Capita has seen a fall in contract value from local government but overall its public sector footprint has grown.

'The company’s biggest advantage is a strong market position: with a contract win on average every two days, it is more embedded than any other supplier to the government.

'Some outsourcers remain financially stressed and there is still risk of another Carillion. But in our opinion the threat doesn’t come from Capita.'

A spokesperson for Capita told LocalGov: 'Government services remain a strategic area of focus for the company as we continue to deliver our multi-year transformation.

'In recent weeks, we have secured new or renewed contracts with Gas Safe Register, the Standards and Testing Agency, and Ealing Council.  

'Our strategy is to focus upon and leverage areas where Capita has core expertise, invest in our transformation, technology and operational capabilities, and productise more of our services.'

For more on outsourcing read our feature, 'Has outsourcing had its day?'