The Mitie Group PLC (LON:MTO) (MTO.L) share price has fallen 2% today after it released a pre-close trading statement for the first half of the year.
Revenue for the year to date has been better than anticipated. It is expected to be £1.1 billion for H1, which is 4% ahead of the comparable period. The revenue trend is expected to continue for the full year, with the company’s order book up 3% against 31 March 2017 at £6.7 billion.
However, progress made on the company’s contract wins has been offset to some extent by the loss of a top 20 contract which was not due for retendering until 2019. The lost contract will result in a one-off cash write-off of £6 million, with an expected termination payment of £2 million.
The company’s transformation plan, Project Helix, is making progress according to the update. Mitie continues to anticipate a reduction in operating costs of £40 million on an annualised basis by FY2020.
It is also seeking to reorganise and simplify its corporate structure, while it remains disciplined in its investment in core capabilities and infrastructure. There will also be a group-wide IT transformation programme, as well as a simplification of management structure.
In the last year, the Mitie share price has risen 31%. That’s a better performance than other companies which have experienced challenging periods in recent years, such as Provident Financial plc (LON:PFG) (PFG.L), Capita PLC (LON:CPI) (CPI.L) and Serco Group plc (LON:SRP) (SRP.L). Provident Financial has fallen 75%, Capita is down 34% and Serco has fallen 13%.
In my opinion, Mitie is making progress with its turnaround plan and could continue to do so in the near term. However, I feel its share price rise may include an assumption that the company’s recovery will be linear and smooth. From my experience, turnarounds can include delays and disappointments, as well as unforeseen challenges. Therefore, on valuation grounds Mitie is a stock I’m not looking to buy just now.