Shares in out-of-favour facilities management firm Mitie (MTO) climbed 7% to 85.7p after it revealed that its business was proving to be ‘more resilient to Covid-19 than initially expected’ and it had signed a major deal to consolidate its market position.
In the year to the end of March, Mitie increased revenues by 4% to £2.17 billion thanks to 5% growth in orders from its biggest clients and new contract wins with pharmaceutical giant GlaxoSmithKline (GSK) and car maker BMW.
Revenues in April and May were only down 12% on last year as some of the discretionary work on its books which was postponed was offset by new work generated directly as a result of the coronavirus epidemic.
Chief executive Phil Bentley was upbeat on current trading: ‘In the first two months of our current financial year, our business proved more resilient than initially expected, reflecting the essential nature of the services we provide to customers. Early indications show that June trading will also be better than expected.’
The firm recently launched a new cleaning product which provides surface protection against coronavirus, and has installed new thermal imaging equipment to help customers prepare for the return to work and protect their staff. Both initiatives have been ‘well received.’
Alongside its results, the firm announced it had agreed to buy Interserve’s facilities management business for £271 million in an all-share deal which would see Interserve shareholders own around 23% of Mitie.
The ‘transformative’ acquisition enhances Mitie’s position as a top tier UK facilities management provider and increases its exposure to the public sector.
The Interserve unit generated revenues of £1.37 billion in the year to the end of December, meaning a 40% uplift to group revenues, while operating profits were £38 million. By integrating the business, Mitie believes it can extract £30 million of annual cost savings by the end of the second year of full ownership.
The deal is being part-financed through a £201 million rights issue and a £250 million extension of the firm’s loan facilities.