Mitie, the outsourcer, continues to relinquish valuable assets. Its catering division is now being sold for £85m. Its pest control business went for £40m. Its social housing unit was offloaded for £35m. Even its security guards had to leave the old Financial Times building — and they were priceless.
Disposals are necessary, though, as chief executive Phil Bentley seeks to turn round a business where debt covenants were once tested by three profit warnings in four months. Selling the catering operations to CH&CO will “further strengthen Mitie’s balance sheet” and further extend its strategy of providing comprehensive facilities management, without having to do it all itself. A five-year partnership with CH&CO will ensure staff canteens are still invoiced and relationship-managed by Mitie, but with the new owners actually spooning the couscous. The sale of its pest control division worked in a similar way. Mitie-run buildings are still kept free of furry friends, but with Rentokil’s catchers now setting the traps.
Sale proceeds should see net debt fall from 1.3 times earnings to 0.7 times at the year end, analysts say, and from 3 to 2.6 times on an underlying basis. But cutting debt comes at a cost. In the last financial year, Mitie’s catering business delivered £136m, or 6 per cent, of group revenue, and £5.2m, or 4 per cent, of operating profit. Take into account new contracts won for this year, and the recharges that will have to be spread over remaining businesses, and the profit hit worsens — to 12 per cent on some calculations.
To investors, that will probably seem a price worth paying, given the extent to which debt worries have weighed on outsourcers’ shares. Mitie’s are down 41 per cent in two years. However, it appears a fair price in other ways, too. Although £12m of the proceeds are deferred, analysts note the full £85m is 16.3 times the catering division’s historic profit, or 10.2 times its £8.3m profit excluding internal recharges. That compares favourably with the multiples of catering giants with far greater economies of scale: Compass trades on 14.4 times earnings and Sodexo on 11.6 times. It is also more than many expected. Jefferies analysts suggested in December that a disposal would raise £50m-£55m.
It could even focus attention on Mitie’s group valuation, which some now see as cheap compared with slower-growing rivals. If so, it may prove a deal that works for everyone — rather like the re-employment of certain much-loved security staff in our new office building.
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