MITIE sets minds at rest

Outsourcing group MITIE (MTO) has reassured investors with news that it's end-March full-year results are expected to be in line with market expectations. Its trading update was upbeat about the group’s performance and MITIE drew particular attention to solid trading in facilities management. This business is a key area of focus given MITIE’s ambition to maximise its organic growth potential and build number one market positions.

MITIE is also pushing its healthcare business, where it's looking to secure the market leading position in the homecare market. In tandem with the push into these attractive segments, MITIE is also beating a retreat from less attractive, lower-margin business. MITIE says it is continuing to make progress in its exit from mechanical and electrical engineering contracting businesses and with reducing exposure to the loss-making part of its asset management business.

The group also released news of a successful re-tender for the Network Rail contract. This contract, which involves the provision of facilities management services, is worth £75m over five years and its award comes as a relief given this was MITIE’s biggest contract up for re-bidding this year.

Investec Securities says…

Buy. Overall, a solid update from MITIE, pointing towards good momentum. With much of the hard work done in terms of building sufficient scale in facilities management and healthcare and the removal of the distraction of its more cyclical activities, MITIE looks well placed to benefit from the increasing organic growth opportunities in its end markets. On a calendar year 2015 PE ratio of around 12 times, the shares continue to look good value. We therefore reiterate our buy stance and 360p target price. Expect adjusted EPS of 24.8p for financial year ended 31 March 2014 (2012-13: 22.5p) and an 11.5p dividend.

UBS says

Neutral. The underlying business has continued to trade well. Good organic growth of around 5 per cent in the second half was driven by both new and expanding contracts and MITIE sees mid-single digit growth continuing into 2015, based on the current business (ie without major contract wins). Progress has also been made with repositioning the business and management sees a very buoyant market for facilities management and for the healthcare operations. MITIE has continued to see good progress on larger contracts, too. As well as the renewal of Network Rail contract, MITIE was also awarded a contract last month with the Home Office to manage an immigration centre near Heathrow (£180m/ eight years). But the price target is 340p.