Is Mitie Group PLC A Better Turnaround Prospect Than Tesco PLC, J Sainsbury plc, AstraZeneca plc And BP plc?

Will Mitie Group PLC (LON:MTO) outperform Tesco PLC (LON:TSCO), J Sainsbury plc (LON:SBRY), AstraZeneca plc (LON:AZN) and BP plc (LON:BP)?

Mitie Group PLC
Mitie Group PLC

Mitie Group PLC (LON:MTO) (LSE:MTO.L) has released H1 results today, which have caused its shares to fall by 10%. Mitie has decided to withdraw from the domiciliary healthcare market and has placed its domiciliary healthcare business under strategic review. Mitie will continue to fulfil its obligations within the healthcare space but it will initiate no new investment in this area. It has changed its long term view of the market and has written off all of its healthcare goodwill and intangibles.

The write-off of assets totalled £117.2 million as well as restructuring costs of £6 million. This has led to a loss before tax of £100.4 million for H1. Even though it has made a loss, Mitie has still paid a dividend of 4p per share. This is down on H1 2015’s dividend of 5.4p per share, but still represents 1.6x cover versus 2.1x cover in H1 2015.

The performance in H1 has been impacted by changing market conditions as Mitie’s clients have adjusted to rising labour costs and economic uncertainty. Due to ongoing market uncertainties, Mitie now expects underlying earnings for FY2017 to be below previous expectations. That’s despite an expectation for an improved performance in H2.

In my view, Mitie’s turnaround potential is relatively high, but could take longer to come to fruition than other turnaround stocks such as Tesco PLC (LON:TSCO), J Sainsbury plc (LON:SBRY), AstraZeneca plc (LON:AZN) and BP plc (LON:BP). In Tesco and Sainsbury’s case, they now have the right strategies in my opinion to grow. Tesco will become a more efficient, simpler business while Sainsbury’s has cross-selling opportunity after the purchase of Argos.

Other turnaround opportunities such as AstraZeneca and BP also have more appeal than Mitie in my view. AstraZeneca’s pipeline could propel its earnings higher, while BP could benefit from rising demand for oil and gas in future. While Mitie has turnaround appeal, I believe that it will take time for its new management to make the necessary changes to improve its financial performance.

Mitie also faces a difficult market outlook. Therefore, I believe that Mitie has less appeal than other turnaround opportunities such as Tesco, BP, Sainsbury’s and AstraZeneca at this moment in time.

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