Mitie Group PLC (LON:MTO) (LSE:MTO.L) has released a trading update today. It states that its Board has reviewed strategy and considered the trading outlook for the current financial year. It has decided that the Cleaning division is underperforming and management changes will be implemented.
Further, the Property Management and Technical FM divisions have been hurt by client deferrals and investment plan delays respectively. They are now expected to be fulfilled in Q2 2017.
The Board has also taken a more conservative view on contractual positions following a balance sheet review. This has caused an additional £14 million in one off charges for the 2017 financial year.
Due to the above, Mitie now expects underlying profit for the year to 31 March 2017 to be between £60 million and £70 million. This is inclusive of ongoing healthcare losses but prior to the previously disclosed £10 million one off costs of change. The company remains within its contractual banking covenants in spite of the downgrade to profit.
In the last year, Mitie’s share price has fallen by 28%. This is a worse performance than its industrials industry group peers BAE Systems plc (LON:BA) (LSE:BA.L), Rolls-Royce Holding PLC (LON:RR) (LSE:RR.L), Royal Mail PLC (LON:RMG) (LSE:RMG.L) and Travis Perkins plc (LON:TPK) (LSE:TPK.L). BAE has risen by 17%, Royal Mail is up 2%, Rolls-Royce has gained 27%, while Travis Perkins is down 21%.
In my view, Mitie’s share price could continue to underperform its peers. The company is in the process of making significant changes to its business which I feel will take time to put in place. Although today’s news is disappointing, the company’s new management team seem to be taking the necessary steps to put the business back on the path to improving financial performance. However, it’s a share I’m avoiding at the moment.