Why Mitie could see another 25% drop in its share price

Friday, Oct 28 2016 by
8

Key talking points on why Mitie see another 25% drop

1. According to Jim Artimitage of the Evening Standard, the new CEO Phil Bentley is a sort of fella goes looking for skeletons in Mitie’s cupboard to implement a massive write-down on its assets.

2. Goodwill is likely to get written down by 45% because Goodwill turnover has deteriorated from 8.1X to 4.8X, helping to drag overall asset quality lower.

Therefore, a write-down of £200m from goodwill will mean shareholders’ value will fall to £206m from £450m

3. Mitie is likely to see zero sales growth in the future, along with contracting earnings.

In the last five years, average sales grew 2% p.a., whereas cash profits increased by £10m.

4. The company runs a net debt position close to £170m.

5. Some people will say Mitie go the way of Connaught PLC, but, in my opinion, this is an unlikely scenario because it has £200m+ in undrawn debt facilities expiring in 2019.

Therefore, the target price for Mitie in the next 12 months is £1.35 to £1.50/share.  


A MITIE RECOVERY OR A MITIE CRASH IS LOOMING

Shareholders in Mitie experienced the crash, as the support services group saw its shares fell by 40% since 2015.

The company, which provide assistances with healthcare, building maintenance and twenty other kinds of works are blaming on “BREXIT,” higher minimum wages and declining local authorities’ budget.

Is the drop in its share price a temporary blip to this consistent profit-making business (it hasn’t made an “accounting loss” in 20 years), or is Mitie facing the same fate as Connaught PLC (went bust in 2010)?

Your Mitie Briefing

One of the most important aspects of Mitie business is its “Soft” facilities management division.

This group includes cleaning, environmental services, security, catering and front of house services, which makes up 50% of total sales and 70% of operating profits.

Despite, a quick recovery in 2016, earnings in 2017 are expected to decline by £10m against its bottom line, so how does this compare and affect the overall business at Mitie?   

An in-depth financial + operational analysis

Mitie consistent earnings record


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Source: Mitie’s annual reports.

(As stated) the long-term trends in Mitie’s net margins for both accounting profits and cash profits have been consistently positive.

Despite poor performance during 2013-15, it made a recovery in 2016.

However, the warning of…

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Mitie Group plc is a United Kingdom-based provider of facilities management services. Its segments include Engineering Services, Security, Cleaning and Environmental services, Public Services, Catering, and Professional Services and Connected Workspace and Care and Custody. Through its operating segments, the Company provides a range of services and products for landscaping, gritting, security personnel, fire and security systems, remote monitoring, workplace and outdoor catering, building maintenance, and heating and ventilation. The Company also provides other public services that include property management, roofing and refurbishment services, and custody support services. The Company operates through its subsidiaries and provides its services through customized service contracts, such as single, bundled, integrated and connected. The Professional Services and Connected Workspace segment provides consultancy services related to the joined-up proposition of services among others. more »

LSE Price
157.1p
Change
0.9%
Mkt Cap (£m)
574.9
P/E (fwd)
8.9
Yield (fwd)
2.5



  Is LON:MTO fundamentally strong or weak? Find out More »


3 Posts on this Thread show/hide all

gus 1065 28th Oct '16 1 of 3

Hi Orangetree - excellent dissection of the company and its problems.

I was in this stock a while back but sold earlier in the summer before the recent profit warning so glad to be out of it. I recall Phil Bentley has quite a hard nosed reputation (from his Centrica days?) and given the incumbent CEO was in the post for 10 years or so I can imagine there are plenty of skeletons to come out.

Might be an interesting value stock to come back to in the future once the kitchen sinking has been done but happy to watch from the sidelines for now. Also worth watching the outstanding many short positions to see as and when these are closed out to assess when the market thinks the storm is over. At least 10.6% of the shares are currently shorted by a number of funds without counting spread bets and shorts under 0.5%:-

http://www.shorttracker.co.uk/company/GB0004657408/all

Best,

Gus.

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BlueFrew 28th Oct '16 2 of 3
3

I've got a tiny short position at the moment. Had a bigger short position at higher levels. Very good article summarising the issues at Mitie (LON:MTO) . Unless something fundamental happens before the first set of results under Phil Bentley, I intend to increase my short significantly in the run up.

I think Mitie will probably survive, but I expect they will have to raise money at some point. I also expect the first results under Bentley to be a sea of red ink.

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hayashi22 18th Jan '17 3 of 3
1

Just come across this article. It's very good indeed. I think you might have made more as to why this was allowed to happen. The problem was that the story became Ruby McGregor-Smith -a lightweight incompetent with a flair for self publicity-and not Mitie. (a non-holder and never would consider buying)

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