Beleaguered outsourcer Mitie enjoys some respite today as investors respond positively to news it is appointing former Cable & Wireless Communications chief executive Phil Bentley to its top job.

Mitie, which in September delivered a profit warning based on lower workload, price pressure and delayed contract awards, has seen its shares dip 37% year-to-date to 195p.

Today, the stock trades flat, after earlier gains, on the appointment of Bentley, who will replace long-time chief executive officer (CEO) Ruby McGregor-Smith.

'While this comes at a challenging time for Mitie in sluggish outsourcing markets, the succession plan has been under review all year; the outgoing CEO has long seen a decade as a suitable tenure,' write analysts at UBS.

'Although recently financial performance has been below expectations the company is working well operationally, with no major customer disputes or contract issues and so offers a stable base for transition.

'Conditions are ever-changing however, and a new CEO will have a clear target to reinvigorate group strategy to combat current challenging markets.'

Bentley, who was in charge at telco Cable & Wireless until its takeover in January 2014 by Liberty Global, will have plenty of work to do when he officially takes over from McGregor-Smith in December.

UBS analyst Rory McKenzie downgraded earnings forecasts by almost 20% after September's profit warning.

 

EARNINGS FORECASTS    
Mitie – Sales and profit estimates (£m)    
         
2015 2016 2017 2018
Sales 2,226 2,232 2,255 2,298
Operating profit 129 129 113 121
Net earnings 89 92 77 84
EPS 24.2p 25.7p 21.9p 23.7p
DPS 11.6p 12.1p 11.5p 11.5p
         
Source: UBS, 26 Sep – year-end: March    

 

'The degree of profit pressure (and required restructuring) on Mitie suggests some company-specific issues, but in general UK outsourcing is clearly struggling,' wrote McKenzie after the update.

'Alongside technology-driven deflationary pressures (eg in security), the uncertainty post-UK referendum is delaying contract awards that could offer offsetting volume growth.

'At our conference last week, Capita (CPI) equally identified weak market trends, but we would expect pressures to hit peers such as Serco (SRP), Carillion (CLLN) and other service names.

'We still see a modest long-term growth opportunity, but this is unlikely before 2019.'


Issue Date: 10 Oct 2016