Mitie slumps on RBC Capital downgrade

Shares in outsourcing company Mitie were under the cosh on Wednesday as RBC Capital Markets downgraded its stance on the stock to ‘underperform’ from ‘sector perform’ and cut the price target to 160p from 195p ahead of first-half results.

“We already know H1 will not be good. However, the key question is whether the trading and outlook has improved.

“In our view (and given recent market developments), it is difficult to foresee any real improvement. Ahead of the new CEO being introduced to the market, we therefore make a pre-emptive cut to both forecasts and dividends and move to underperform.”

The Canadian bank highlighted the fact that the outlook for UK outsourcers has deteriorated significantly in the last 12 months, with clients looking to transfer more risk to the service provider and margin pressure growing.

“Mitie has already warned, Capita has since followed suit and in our view, it is only a matter of time before this sector is once again under scrutiny for the wrong reasons.”

As far as expectations for the first-half numbers are concerned, RBC said revenue are likely to be modestly lower than last year, down 2.5%, while operating profit is likely to be at least 20% lower due to the absence of higher margin work and discretionary spend, and general pricing pressure.

Back in September, Mitie shares tumbled after it issued a surprise profit warning, cutting its profit outlook following the Brexit vote and due to other economic pressures.

At 0945 GMT, Mitie shares were down 5.9% to 205.39p.