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The Mitie effort to survive

The facilities management group had a tough first half - but there are some reasons to be optimistic
November 19, 2020
  • Profits slumped because of coronavirus, but management has pulled back costs and net debt 
  • A £4bn order book looks healthy
IC TIP: Hold at 40p

For Mitie (MTO), cutting costs has been at the top of the to-do list for most of this year. Trading has been hit hard by coronavirus restrictions since the end of March, especially as empty offices drew back demand for its business services. As such, operating profits dropped by more than half to £9.6m in the six months ended in September - although management said the performance was “more resilient” than expected - a familiar refrain but probably justified where Mitie is concerned. 

Indeed, the group cited an improvement in the second quarter, when lockdown rules eased. But revenue from continuing operations fell by a tenth to £972m, partly because of a lost contract with the Ministry of Justice and the reduced scope of a deal with the NHS. But overall, revenues generated from the public sector have been relatively steady, which Mitie expects will continue while the government deals with the pandemic. 

Meanwhile, management has pressed on with its refinancing effort, having completed a rights issue that raised £190m in net proceeds. That is in addition to refinancing a £250m revolving credit facility until December 2022.  Average daily net debt, excluding lease liabilities, was pushed down to £69m, compared to £351m at the same point last year.

The acquisition of Interserve’s facilities management arm, which is expected to complete at the end of the month, should help support an order book that already stands at £4bn, just a shade below the £4.1bn at the same time last year. But investors will need to keep a watchful eye on the impact of the integration process on the group’s margins. Hold. 

MITIE (MTO)    
ORD PRICE:40pMARKET VALUE:£ 468m
TOUCH:40-40.4p12-MONTH HIGH:154pLOW: 27p
DIVIDEND YIELD:1.3%PE RATIO:4
NET ASSET VALUE:22p*NET CASH:£66.4m
Half-year to 30 SepTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20190.9714.61.600.69
20201.082.10-0.10nil
% change+11-86--
Ex-div:na   
Payment:na   
*Includes intangible assets of £329m or 28p a share

Last IC View: Hold, 32p, 5 August 2020