Mitie under the cosh after Jefferies downgrade

Outsourcing and energy services company Mitie was under the cosh on Tuesday as Jefferies downgraded the stock to 'underperform' form 'hold' and cut the price target to 175p from 195p as it said accounting changes could create headwinds.

It said the shares have been volatile as the market assesses the outlook for recovered earnings and the balance sheet.

"In our view, the new CEO is taking many necessary steps to rehabilitate Mitie but risk/reward is unfavourable ahead of the KPMG accounting review," Jefferies said.

The bank said accounting is a key issue for the shares as prepayments/accrued income have expanded considerably and material accounting restatement is a major pillar of the bear case.

Jefferies said percentage of completion method accounting may have flattered group earnings before interest, taxes and amortisation by around £20m to £30m annually for the past three years, with the cash impact offset by a receivables discounting facility.

The bank cut its earnings per share estimates for FY17 and FY18 by 23% and 20%, respectively, to 13p and 16.50p. The estimates now sit 5-7% below consensus.

At 1223 GMT, the shares were down 4.2% to 201.27p.