Facilities management company Mitie's (MTO) shares gain 4% to 203.6p as its results do not contain any nasty surprises.
For the year ending 31 March, the company grew its revenues by 2.8% to £2.2bn although adjusted operating profit was down 6% at £77.1m. Both figures were anticipated by the market as the company updated expectations in March.
For investors still thinking about the fate of fallen peer Carillion, the news that Mitie’s net debt is still ‘comfortably’ within its debt covenants should come as a relief. Mitie's debt has increased to £193.5m from £147.2m a year ago, although this is still better than expected.
Andrew Gibb, analyst at investment bank RBC Capital Markets, says ‘importantly average debt was down around £50m as guided’.
Chief executive Phil Bentley tells Shares that he did feel that Mitie was being put in the same category as Carillion, although unfairly in his view. He adds 'not all outsourcers are the same, some are more reliant on the public sector and construction [Carillion]'.
Mitie undertakes a vast array of different jobs for both the public and private sectors. The company describes its notable contract wins in the year including a detention and escorting contract for the Home Office worth £525m over 10 years.
It also bagged a five-year contract with West Hertfordshire NHS Trust worth £55m as well as contracts with the private sector such as an integrated facilities management deal with the Co-op.
PROJECT HELIX
Mitie launched an ambitious programme last year aimed at simplifying the business with the ‘removal of spans of management and layers of inefficiencies’. Dubbed Project Helix, this ambitious plan had already delivered annualised cost savings of £13.2m by 31 March this year. The company hopes for this to rise to £50m a year by 2020.
Bentley admits that the scale of the task is larger ‘than we initially anticipated but we believe the upside will be greater too’. He adds that it was prompted by a desire for 'survival'.
Project Helix aims to move the company from over 50 legal entities to just one in the space of a year hoping this will streamline the business.
Joe Brent, analyst at Liberum, says not all the savings generated from Project Helix will drop through to the bottom line, since some will be reinvested and some shared with customers.
Mitie's annual fuel spend has already been cut by £0.5m in the first half of 2018 and the project should lead to further reductions in overheads with improvements in productivity.
RBC's Gibb says: 'We continue to believe there should be the opportunity for scale players such as Mitie to take market share. We also like the fact that the group is much less reliant on the UK public sector than it peers an area of the market where we see continued risk in the near term’.
Using Liberum’s forecasts, Mitie remains largely unloved, currently trading on just 9.2 times forecast 2019 earnings.
