Mitie shares slide after latest ‘sting-in-tail’ earnings
Ken Odeluga November 17, 2014 10:13 PM
<p>Outsourcing firm Mitie Group said a multi-million pound write-off for businesses it’s closing down pushed it into pre-tax loss. Its stock tumbled 7% in reaction […]</p>
Outsourcing firm Mitie Group said a multi-million pound write-off for businesses it’s closing down pushed it into pre-tax loss.
Its stock tumbled 7% in reaction and traded around 5% lower all day.
Mitie, widely known in the UK for its fleet of vans embossed with the firm’s distinctive logo, said it swung to a pre-tax loss of £1.3m in the six months to 30th September, from a profit of £42.8m in the same half a year ago.
Write-offs and failures
It said it was booking a charge worth £45.7m on the remaining design and build contracts in its unprofitable asset management business.
Mitie has said it will close that the business this year and will also exit its mechanical and electrical engineering construction business, bringing the exceptional costs for the first half to a total of £58.3m.
Headline revenues grew 4.8% to £1.095bn.
Were it not for the one-off costs, adjusted profit before tax would have been £57m against £55.3m at the same point a year ago.
Mitie, whose businesses span from maintenance and cleaning to baggage screening at London’s Heathrow airport, said it had now completed its exit from loss-making businesses and would take no further charges.
It said two years ago it planned to focus on its core areas of facilities management, property management and healthcare.
‘Other items’ can hurt
Aside from negative news from its asset management business, Mitie’s CEO, Ruby McGregor-Smith, said other operations had performed well.
“We have delivered a strong performance in our facilities management business during the first half of the year, and we expect to gain further positive momentum through the rest of the year,” McGregor-Smith said.
With regard to the failed business activities she added: “We have significantly de-risked our group by finalizing the exit from our loss-making businesses. We are focused on investing in and maximising the long-term growth potential of our facilities management, property management and healthcare businesses”.
However, it appears Mitie is on the verge of making a bad habit of reporting profit with a sting in its tail.
For the last three reporting periods including today’s, negative ‘other items’ have equated to £52.3m, £44.9m and £58.3m.
Investors are aware that such a habit, were it to form, would be an additional negative for a firm whose debts were more than double its operating profit at the last financial year.
Furthermore, it will not have escaped investors in the sector that Mitie’s fellow FTSE 250 peer, Serco Plc., was recently ‘kitchen-sinked’ and subsequently placed on a much more appealing prospective growth of 4.9%, compared with Mitie’s 3.8% in yield terms.
217p is Magnetic South
One way to resolve the valuation issue after today might be via the stock price…
The distance from current levels to a 61.8% retracement of the stock’s entire (adjusted) ascent from first trading date in the late 1980s to all-time closing high in February, at 345.6p, is not that great.
The 61.8% marker is at about 217p and I suspect it will have considerable magnetism, even if that ultimately proves to be resistible.
Overhead, the gap created by today’s opening tumble is the most obvious challenge.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.