Investec downgrades Mitie on uncertain outlook

Investec downgraded Mitie to ‘hold’ from ‘buy’ and slashed the price target to 188p from 360p as it pointed to the outsourcer’s uncertain outlook.

In the company’s trading update on 19 September, it significantly downgraded its interim and full-year outlook, without giving quantitative guidance, citing a number of headwinds.

In addition, restructuring costs of £10m are also expected to impact full-year profit, with a £15m benefit expected in the second half of next year, the brokerage said.

Mitie warned earlier this month that full-year profits would be material lower than expected due to a drop-off in higher margin contracts in the first-half and the cost of new efficiency programmes.

It said that revenue and profit in the property management segment had been significantly hit by local authority budget pressures and particularly by the statutory social housing rent reductions that came into effect in April, which reduced the funding available to local authorities and housing associations for repairs, maintenance and project works.

Investec said: “Compared to its two most closely aligned peers, this is still a premium to the recently issue-beset Interserve due to higher estimated operating margins, but a discount to Mears given significant further downside risks.”

At 1056 BST, Mitie shares were down 2.9% to 179.36p.