Mitie shows its strength

Mitie (MTO) is on a cost-saving drive. After a tough lockdown, when empty offices hit demand, the facilities management group has boosted its profit margins with a series of strict new measures.

Statutory figures demonstrate the aberrant trading conditions experienced by the group through much of 2020, with the top line doubling year on year. It should be noted, however, that £259m of interim revenues came from short-term Covid-related contracts, which management expects to "significantly reduce" in the second half. Mitie’s performance has also been boosted by £629m in revenues from Interserve Facilities Management, which it acquired last November. But even when these factors are excluded, revenue growth stood at 12 per cent compared with a difficult period last year, underpinned by new contract wins, and management said underlying revenues are back to pre-Covid levels.  

Mitie’s profit guidance for the full year remains unchanged, and it has reintroduced a half-year dividend at 0.4p per share. 

The focus is now on increasing profit margins to between 4.5 and 5.5 per cent. (Operating profit margin in the first half was 4.4 per cent, but, again, this was largely due to £40m of profits from Covid contracts.) Interserve has endured some rigorous cost saving measures, with jobs and properties both cut back.

£10.8m was saved in "cost synergies" during the period, and management has increased its full-year target to £25m. It ‘remains on track’ to deliver £42m of savings by the end of financial year 2023.

Providing the integration process stays on track, this could be an interesting opportunity for investors, but the one-off impact of the virus makes it difficult to accurately assess long-term trading prospects. Hold. 

Last IC view:  Hold, 40p, 19 Nov 2020