Profit at outsourcer Mitie (MTO) will be lower than expected as weakness in its cleaning division and contract delays weighed on performance.
Shares in the Bristol-based facilities management specialist dip around 7% to 192p, giving back most of the gains the company's stock price enjoyed since the appointment of new chief executive Phil Bentley in November, previously at Cable & Wireless and British Gas.
The news marks another disappointing chapter in the beleaguered outsourcer's recent history. Sceptics have long argued Mitie's share price had raced ahead of its underlying performance amid accounting red flags and recently shareholders have paid a heavy price: the stock is down around 30% in the last year.
Underlying operating profit for the year to 31 March 2017 is expected to be between £60m and £70m, the company says in a trading update today. That represents a profit downgrade of nearly 20% versus earlier forecasts of £91m, published by analysts at Canaccord Genuity.
ORDER DELAYS HIT
'A further trading update this morning confirms that delays in Property Management and Technical Facilities Management have been impacted by client deferrals and investment delays – but are expected to be fulfilled in the second quarter of 2017,' writes Cannacord analyst Walker.
'Cleaning, as flagged at the interim results, continues to under-perform with some peers having absorbed the impact of living wages over the past 12 months. Management changes are being implemented in the division.'
Another development may vindicate questions posed by short-sellers of the company's share price in recent years: Mitie is reconsidering its accounting policies.
ACCOUNTING RED FLAGS
Around £14m of revenue booked but not yet received is being written off, according to today's update. A review of new accounting rules on revenue recognition to be introduced in 2018 has also been launched.
Short-seller Matthew Earl, a former analyst-turned-private investor, previously made trades to benefit from a falling share price at Mitie because of concern over its recognition of revenue.
In a separate announcement made by Mitie today, chief finance officer Suzanne Baxter is leaving the company to be replaced by Sandip Mahajan,