Barclays ups Mitie to 'overweight' on cost cutting plans

Analysts at Barclays highlighted Mitie's current strategy as being a "good fit" for shifts in the facilities management market and upgraded the shares to 'overweight' from 'underweight'.

Barclays, which upped its target price to 180p from 174p, pointed to recent comments made by Mitie chief executive Phil Bentley as positive momentum in the company that now appears to realise that there are investments to be made in getting the basics done right before the group can move up the value chain with its customers.

"If we want to have an engaged conversation with our clients about the Connected Workspace, we better make sure the toilets aren’t blocked," Bentley was quoted as saying.

Analyst Jane Sparrow of Barclays noted that these investments would make for a non-linear recovery, and when coupled with UK labour cost pressures, could mean that the final net cost savings delivered by Mitie would possibly be well below current management targets and that leverage may not quite reduce as quickly as projected.

Sparrow highlighted an increased use of technology in facilities management as being a key driver in the next phase of the market, firstly as a way of utilising existing resources more efficiently to offset labour cost pressures, but secondly, that technology would end up driving market share into the arms of those companies who can offer solutions based around more effective workspace utilisation and employee well-being to "deliver savings to the customer from a total cost of ownership perspective".

"Put simply, cost savings can no longer come from cleaning the toilets slightly less often, or adding more blue-collar services to a contract and trying to achieve economies of scale. The approach has to become more innovative. We believe Mitie’s strategy recognises this," the Friday morning research note read.