Mitie hit by brutal profit warning over living wage
NEARLY £280m was wiped off the value of Mitie yesterday after a brutal profits warning sent shares crashing to a sixyear low.
The FTSE 250 outsourcing company, whose clients include Rolls-Royce, Tesco, the NHS and the Home Office, said it expects first half profits to be ‘very significantly lower’ than they were last year.
It blamed a host of factors for the darkening outlook – including the introduction of the national living wage, ongoing cuts to public sector budgets and the uncertainty surrounding Brexit.
Mitie, whose chief executive Ruby McGregor-Smith was made a Conservative peer last year by David Cameron, added that full year profits will be ‘materially below’ previous expectations. Shares in the company tumbled 29pc or 77.7p to 191.3p – the lowest level since late 2010 – slashing its stock market value from £966m to £687m.
But while the slump will be painful for many investors, it was cheered by a string of hedge funds which have been banking on a fall in the share price.
Mitie is the sixth most ‘shorted’ major company on the stock market with 11 investors betting against its shares – including GLG Partners, BlackRock Investment Management, Marshall Wace and SFM UK Management, which was set up by billionaire George Soros.
Analysts warned further share price falls could be on the way.
Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said: ‘Higher costs stemming from tighter labour regulation and lower spending from public sector customers suggests this could be more than a temporary blip.’
Under George Osborne’s flagship living wage policy, the minimum hourly pay for staff aged 25 and over jumped from £6.70 to £7.20 in April. It is due to top £9 by 2020.
Mitie has passed on the extra costs to its clients leaving them with less money to spend on its services which include catering, cleaning and security.
The company added that spending by its customers has been hit by uncertainty surrounding the EU referendum and the impact of the Brexit vote.