Mitie is looking to bulk up its presence in areas such as social housing and catering after a shift towards “multi-service” deals helped the support services group lift underlying annual profits by 16 per cent.

Mitie full-year results
SalesPre-tax profitEarnings per shareDividend

The company, which provides security for EasyJet and cleans the Tower of London, is considering making an acquisition of a similar size to the £130m ($188m) it paid last year for Dalkia’s facilities management arm.

Large outsourcing companies have sought to expand the services they are able to offer clients during the downturn and nascent recovery, with fewer but longer-term contracts.

Ruby McGregor-Smith, chief executive, said of her clients: “Everyone is looking to save money, improve services and increase innovation – and the way to do it is to award much bigger outsourcing contracts.”

Her comments came as shares in the FTSE 250 company rallied 8.5p to 238.6p on Monday in the wake of its full-year results.

Pre-tax profits in the 12 months to the end of March rose from £75.9m to £79.7m. Excluding items related to acquisitions, operating profits rose from £80.5m to £93m.

Overall sales rose from £1.5bn to £1.7bn, although organic revenue improved by a more modest 0.5 per cent. Underlying operating margins increased slightly from 5.3 per cent to 5.4 per cent.

Mitie, which derives 45 per cent of revenue from the public sector, said that pressure on central government and local authorities to cut costs would result in contracts that were “larger and broader in scope.”

The board recommended a final dividend of 4.1p, giving a total for the year of 7.8p (6.9p)

Mitie had net debt of £86.6m at the end of the period as well as committed banking facilities of £230m.

Diluted earnings per share were 16.6p (16.5p).

FT Comment

Shares in Mitie have trodden water in recent months, underperforming the FTSE 350 support services index by about 10 per cent since the turn of the year. Yesterday’s rally leaves them trading on less than 12 times forecast earnings per share of 21p – much cheaper than the likes of Serco and Capita but in line with similarly-sized peers. Mitie’s bid pipeline may have reached “unprecedented” levels and the long-term order book stands at £6.4bn, but the company will have to convert that into organic revenue growth if it is to win over the bears.

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