Mitie is growing mighty big. The FTSE 250 outsourcer, whose 64,000 staff clean hospitals, run police custody suites and guard ports, saw its revenues exceed £4 billion for the first time last year. It is flourishing alongside contractors Serco and Babcock as the industry bounces back from a long spell of scandals, collapse and profit warnings.
Mitie’s problems might not have been as high-profile as others (it’s hard to beat charging the government for “tagging” criminals who were, in fact, dead), but it was expensively punished by its entry — and exit — from the elderly home-care market and has faced criticism for its work at refugee detention centres, including running Europe’s largest “immigration removal centre” at Heathrow. But while, historically, Mitie struggled with the pricing and management of contracts, its numbers are now going in the right direction.
Revenues in the last three months of 2023 grew 14 per cent to £1.1 billion on the same time a year earlier. Mitie is flourishing as firms invest in security and energy efficiency, plus it is still benefiting from its £120 million acquisition, in 2020, of Interserve’s facilities management arm.
Mitie has fingers in many pies, and is successfully proving its prowess in facilities management to clients before cross-selling other services. It won £3.5 billion contracts (from the Home Office, Land Securities and Network Rail, among others) in the nine months to December, up 46 per cent on the previous year. Its cross-selling is evident in the fact that its top ten accounts now bring in £1.3 billion of annual revenues, their contract values having grown 15 per cent per year since 2021. That’s triple the outsourcing sector’s average growth rate.
Mitie’s shares — up 6 per cent this year, at 104p — have certainly recovered from the 28p Covid-era nadir but still appear to be cheap, or at least they do not cover the full potential of the company’s ambition. It has spent £145 million future-proofing itself with what it dubs “digital plumbing”: spending on new technological infrastructure including AI to help boost clients’ efficiency. Its balance sheet is also much stronger and cash generation is on the up: Mitie reported a free cash inflow of £65 million in January, compared with £25 million in the previous three months and a £5 million outflow in 2022. Net debt stands at £122 million and the price to earnings ratio, at ten, “is undemanding, given the momentum”, says Alex O’Hanlon, an analyst at Liberum Capital.
Of course, politics could puncture some of this: Angela Raynor, Labour’s deputy leader, promised two years ago that her party would oversee the “biggest wave of insourcing for a generation”. But in the NHS, where Mitie is strong, Sir Keir Starmer has stated that outsourcing was “likely to have to continue”. Away from the headlines, there is unlikely to be an immediate desire to tinker with Mitie’s very low-margin, politically controversial work.
Mighty potential here: buy.