Mitie Group's 'buy' rating reiterated despite revenue warning

Mitie Group’s ‘buy’ rating was reiterated by Canaccord Genuity despite the company warning that full year revenues will be below the current range of market expectations of £2.35bn.

The outsourcing firm said it has experienced revenue shortfalls in the second half of the year as some work has been delayed or cancelled due to increased economic pressures and uncertainty.

Still, Mitie has been managing its cost based and focusing on maintaining margins while continuing to invest for the long term, so profits will be in line with consensus forecasts of between £125m to £133m.

Canaccord said the stock “remains at discount to sector peers having been hindered by several years of weak earnings momentum”.

“A more cautious tone through full year 2017 may allow for a period of more steady delivery against expectations and the opportunity for the shares to re-rate.”

The broker cut its target price to 300p from 320p. It also said its forecasts for 2016 results were in line with the Mitie’s statement, resulting in an EPS reduction of 3%. Canaccord also moved expectations for 2017 earnings down by 8% to reflect the “likelihood of lower organic growth”.

“Whilst the space continues to present attractive opportunities, organic growth has been under some pressure in the latest reporting season and contracts continue to require a greater working capital commitment,” Canaccord added.

Shares fell 8.81% to 241.10p at 1117 GMT.