Mitie proves resilient in the face of inflation

When facilities management group Mitie (MTO) reported its full-year results in June, inflation and rising wages were looming threats to its margins. At the time, it indicated that it intended to pass on some 90 per cent of cost increases to its customers, although it was still expecting a net £10mn-£20mn hit from inflation for the 2023 financial year.

The reality of the situation has (thus far) proved brighter than the company’s forecasts. Inflation pass-through was 96 per cent in the first half and the expected full-year cost impact was revised to under £10mn. 

The better-than-expected performance was attributed to “the contractual protections in place and strong customer relationships”. Mitie has also grown its total order book to £9.6bn – a year-on-year uptick of £0.4bn. 

In the first half, Mitie also had to figure out how to make up for lost Covid-related contracts, which gave margins a notable boost in the six months to 30 September 2021. The company’s reported operating profit margin fell to 3.5 per cent from 4.5 per cent in the previous year. Pre-tax profits also fell for the same reasons. 

Regardless, earnings per share came in 18 per cent above consensus expectations and the company boosted its dividend. Mitie’s staff have also been awarded a £10mn winter support package to help them cope with the cost of living crisis. 

House broker Peel Hunt said Mitie’s shares should re-rate from the current forward price/earnings multiple of 9 “as the margin improves further and the company continues to deliver strong cash generation”. Given the company’s resilience in the face of multiple headwinds, we’re inclined to agree. Buy. 

Last IC view: Hold, 66.7p, 9 June 2022