Shares in outsourcer Mitie (MTO) have fallen 15 per cent since reaching their 12-month peak a month ago - and we reckon there's further to go. The group had a troubled year of trading in FY2015, finally closing its lossmaking mechanical and electrical engineering construction and asset management businesses. However, market pressures on its healthcare and property management businesses are squeezing the group's operating margin and the prospect of rising wage bills when the living wage is introduced next year threatens to add to these problems. What's more, we're wary of the growing significance of "other items" (amortisation and exceptional costs) in Mitie's income statements over recent years as the group attempts to deal with problem businesses and contracts (see table).
- Facilities management business had good 2015
- Offloading lossmaking businesses
- Exposure to public spending cuts
- Slow earnings growth
- Increasing net debt vs cash profits
- High level of "other items"
- Exposure to high living wage
Mitie's property management business provides services including repair, maintenance and investment consultation to a predominately public sector client base. The squeezed budgets of local authorities and housing associations have had a downward effect on margins. This division's operating margin was down 160 basis points last year, while its operating profit fell by more than a quarter to £10.4m, or 8 per cent of the group total.