Tuesday newspaper share tips: Conflicting views on Mitie Group

Shares in the FTSE 250 company dropped on Monday after it posted a drop in interim operating profits.

The company said it was due to the deterioration of performance in its healthcare arm and as it exited unprofitable contracts in that segment.

Headline operating profits fell by 9.5% to reach £58.1m, but management said it was confident of its ability to deliver a "good" full-year performance.

With the performance of the healthcare business going downhill, The Telegraph’s Questor said the main issue is the elderly care sector.

“The local authority healthcare industry is under siege as wages are rising in line with the new living wage, local authority budgets are being cut and rival firms are putting in aggressive bids to win work.”

Questor said while the company is getting out of these contracts and shutting down branches, revenue from the healthcare sector was down 20%.

However it did note that the rest of the business was doing well, with revenue up to £946m in Mitie’s facilities management arm.

But it warned that to hit full year pre-tax profits expectations of £117m, it has to see a big jump in the second half of the year – not an easy feat.

For that reason, Questor advised to avoid the shares.

Over at The Times, Tempus was more confident about the company in the long-term.

It said that the company has always had its detractors and the healthcare results, which were meant to be a source of future growth, wouldn’t have helped.

It noted the concern about the impending national living wage, especially as the company relies on low-paid workers.

“The company insists it is a good thing, boosting staff morale and reliability, but it will be a while before the truth of this is known.”

However the pundit said the market reaction to the results was overdone, with the healthcare results down due to exiting less profitable work.

But with rivals driven out by rising costs and tighter regulation, Tempus believed that Mitie could be the key beneficiary in the long term.

On top of the dividend being increased by 4%, management showed they have some confidence in the business.

With margins holding up elsewhere in the company and a good supply of new work, Tempus advised it’s worth a long term buy.