Forget the Queen’s Speech. It was Paul Pindar, the chief executive of Capita Group, who provided a more rousing take on the public finances yesterday. “When you look at [central government], which is now spending in excess of £620 billion a year, much of it is spent on administrative process,” he said. “In my 22 years at Capita, it is at the most inefficient and the fattest that it has ever been. We’ve probably got to a point where we need to stop writing lots of reports ... and need somebody with the political will and intensity to get on and tackle it.”

Mr Pindar has a vested interest, of course. Capita, the back-office processing specialist, owes its two decades of stellar growth to the administrative efficiencies that it has brought to local government — and which it now seeks to extend to central government departments (only one tenth of sales at present).

But the more immediate problem is that Capita’s growth is starting to slow. Last month it lost one of its biggest contracts — administering the London congestion charge scheme, now passed to IBM — and big-ticket deals to replace that revenue are proving slow to sign.

The trading update showed yesterday that the company had secured only £186 million of new business since June 30, against £814 million in the preceding six months. Low inflation is also taking its toll: a large slug of Capita’s contracted sales are linked to the retail price index.

The other difficulty is the potential hiatus in public sector outsourcing caused by the general election next year. With Capita’s underlying revenue growth having slowed from 8 per cent in the first half of this year to 5 per cent in the second, it might be expected to head lower still.

Not that Capita has changed its forecasts. The benefits of previously won work, such as a £500 million pensions outsourcing deal with Axa, of France, the fillip from bolt-on acquisitions, and margin improvements from economies of scale mean that the company is still expected to produce £323 million of pre-tax profits in 2009 and £360 million in 2010.

Budgetary pressures on local government, which typically receive four fifths of its funding from central government, should only accelerate the momentum behind white-collar outsourcing. So, too, should consolidation in the life insurance sector, Capita’s second-biggest source of work. Meanwhile, Capita is also busy making inroads into healthcare, defence and utilities, sectors that seem ripe for the sort of cost savings that it can offer.

It is too soon to tell whether the City’s underlying fear — that Capita’s years of consistent double-digit growth are ending — will be realised. However, in the interim, professional investors may prove unwilling to pay 721¾p, or 17 times 2010 earnings, if that trajectory is in doubt. For that reason, take profits.

Melrose Resources

Oil prices may be stuck in an $80 range but forecasts for Melrose Resources continue to move in the right direction.

Yesterday, the mid-cap explorer and producer said that it was on course to produce 38,500 barrels of oil a day equivalent in 2009 — nearly 12 per cent higher than its prediction at the start of the year.

Melrose’s new field developments in the Nile Delta have come on stream faster than expected and a gas injection project that might have disrupted output has been deferred until early next year. Its shares rose by nearly 5 per cent.

There were other encouragements. After a period in which the focus has been on developing the company’s existing assets, a doubling of oil prices from last year’s low has prompted Melrose to restart its exploration programme. It will begin with three prospects in licence areas adjacent to producing fields in Lower Egypt but soon move south. The best prospect there, the vast Mesaha concession near the Sudanese border, which is two thirds of the size of the Gulf of Suez, has never been explored.

Exploration on Melrose’s South Mardin blocks in Turkey is set for 2011. There has also been progress in the Black Sea, the company’s other big region, although elections in Bulgaria and Romania have delayed schemes that are dependent on government approval. However, it has received the go-ahead for its Kavarna sub-sea gasfield in Bulgaria and should shortly do so for neighbouring Kaliakra, which, when producing next year, will provide an additional boost to cashflow. At 356¼p, or 11 times next year’s earnings, buy on weakness.

Biocompatibles

A grey November day might not seem the most fitting time of year to unveil technology used to detect melanomas — but that was the case at Biocompatibles, the small-cap drug delivery specialist, which yesterday announced the acquisition of MoleMate, a screening tool used by dermatologists and doctors to assess moles more accurately than by conventional visual examination. The deal is mole-sized itself — the assets were bought from administrators for a knockdown £200,000 — but it appears a highly sensible use of the company’s £28 million cash pile. It requires little additional capital to develop, extends Biocompatible’s reach from cancer therapies into cancer diagnostics and provides scope for sales growth in the UK and Australia — particularly given the ultraviolet exposure of the latter, where less than 5 per cent of GPs currently use the tool. A launch in America, where MoleMate is already approved, is also a possibility.

But it is on the development of the company’s two key products — for liver and colorectal cancer — that its fortunes depend. With trial progress, and a maiden profit, expected next year, at 239p, hold on for more.

Explore Markets

• United States

• Europe

• Japan

• China

• Russia

• The Gulf

• India

• Africa

Times Recommends

• Toyota recalls 437,000 cars including Lexus
• Myners says bonuses are bleeding pension funds
• Japanese company faked safety reports on seats