June 7, 2018 / 6:39 AM / 10 months ago

Mitie sees hope for outsourcers after Carillion collapse

(Reuters) - Outsourcing group Mitie (MTO.L) said it saw signs the troubled industry may regain a measure of pricing power after the wake-up call provided by rival Carillion’s collapse, and said its own restructuring was on track.

Mitie has been investing heavily in technology and staff retention as its new management seeks to turn the page on a string of profit warnings and investigations into past financial accounts and disclosure.

On Thursday, it guided to “modest” revenue growth, less than 5 percent, and higher profit for its current financial year as its investment peak had passed. It reported results in line with guidance for the year to the end of March 2018.

Shares in Mitie - which provides engineering, security and cleaning services to customers including Sainsbury’s (SBRY.L) and Vodafone (VOD.L) - rose 5 percent to 205.6 pence by 0900 GMT, their highest level this year.

“We are where we need to be. We obviously want to see in this year faster growth picking up, less investment in sorting out the past. We’ve sorted the plumbing out,” Chief Executive Phil Bentley told Reuters. “We’re just trying to run a half decent business.”

Bentley said conversations with government since Carillion’s collapse had indicated a view that the thin margins in the UK industry were not sustainable.

“My sense is there’s a little bit of understanding that in the long run it doesn’t serve anyone well if the industry’s on its knees,” Bentley said, adding that pricing power may now shift in favour of the outsourcers.

Carillion collapsed in January when its banks pulled the plug, triggering Britain’s biggest corporate failure in a decade and intensifying uncertainty about the future of the sector.

Mitie said it would not see its margins deteriorate this year and maintained its target of improving profitability to 4.5 to 5.5 percent of sales in the medium term.

Shares in Mitie, which is less dependent than its rivals on public sector work, have held up well since the start of the year, gaining 1 percent by Wednesday’s close while Capita (CPI.L) has lost 43 percent and Interservice IRV.L 23 percent.

Canaccord Genuity analyst Gert Zonneveld kept his “buy” rating on the stock, saying Mitie’s strategy of investing in technology to differentiate itself should enhance its competitiveness and profitability in the medium to long term.

Mitie reported adjusted operating profit down 6 percent to 77 million pounds and adjusted revenue up 3 percent to 2.2 billion for its financial year to end-March, in line with expectations.

It recommended a final dividend of 2.67 pence, taking the total dividends for the year to 4 pence, and said it expected to hold the dividend flat until at least the end of its three-year turnaround programme.

Additional reporting by Georgina Prodhan; Editing by Elisabeth O'Leary/Keith Weir

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