Xchanging signals “broadly positive” BPO outlook

(By Anthony Miller) In its trading update today (see here), UK-headquartered BPO pure-play, Xchanging, advised it expects the current economic climate to be “broadly positive” for the BPO market. The company reported revenue growth over the past few months ahead of expectations, spurred by increased procurement volumes in its Business Lines sector (i.e. back-office BPO, including procurement, accounting, as well as IT services), and higher transaction volumes in its Financial Markets sector (Ed: must be all that short selling!). Favourable FX also helped. Xchanging recently announced the acquisition of its Indian offshore partner, Cambridge Solutions (see Xchanging looks to feast on Indian take-away), though the deal is not expected to complete until 2Q09.

We’ve always liked Xchanging, and feel that CEO David Andrews has carved out a really nice niche quite different from the likes of, say, Capita, by reaching out way beyond our shores. Also, Xchanging’s innovative, joint-venture-like ‘Enterprise Partnership’ business model, with the option to buy out the client’s share down the line, is a great way to snare mega-deals at much lower start-up cost than traditional players. We believe that ‘quality’ BPO suppliers, like Xchanging and Capita, must look more secure than most in a market downturn due to the high revenue visibility from long-term contracts and the rather compelling cost-saving proposition from outsourcing back-office processes. The market appears to think so too, as both Xchanging and Capita have outperformed the 32% fall in the FTSE100 over the year, with Xchanging ‘only’ down 18% ytd, and Capita ‘merely’ down 8%.