Mitie Share News (MTO)

FTSE 250 outsourcing group Mitie appears to be suffering some pressure on margins, which coupled with higher costs has resulted in disappointing interims.Although revenues grew 5.6% to £1,026.6m (2011: 971.7m) in the six months ended September 30th 2012, pre-tax profits fell 12.9% to £37.7m (2011: £43.3m) after the cost of sales climbed from £818.7m to £874.8m. The operating profit margin before other items was down at 5.2% (2011: 5.3%). Looking at it by division, its facilities management business increased margins to 6.8% (2011: 6%), margins at its technical facilities management business were flat at 5%, while its property management business saw margins drop to 3.1% (2011: 4.6%), and at its asset management business margins plummeted to minus 8.2% (2011: 1.2%).In the first half of the year Mitie's order book increased by £0.4bn or 4.7% to £9.0bn (March 2012: £8.6bn). Its sales pipeline currently stands at £10.5bn (March 2012: £11.2bn). Looking ahead, revenue visibility is good, with 98% of budgeted revenue for 2012/13 secured (prior year: 97%), and 72% of forecast revenue for 2013/14 secured (prior year: 68%).Net finance costs for the first six months of the year were £4.1m (2011: £3.7m), with the increase reflecting the increased costs of finance of the group following the refinancing of its banking facilities in 2011. Leverage at the period end remained low with net debt at £132.9m (2011: £119.3m), which represents one times earnings before interest, tax, depreciation and amortisations (EBITDA) on a rolling 12-month basis. Following the acquisition of the Enara Group on October 9th it expects gearing to be maintained at less than two times EBITDA at March 31st 2013.Ruby McGregor-Smith CBE, Chief Executive of Mitie said: "We have made this progress in the face of a tough economic climate and a difficult macroeconomic outlook, with continuing challenges within our more cyclical markets. However, we remain positive about the range of outsourcing and energy services opportunities across our key markets and continue to see a growing order book as well as a strong pipeline of sales opportunities. "We expect total revenue growth to be higher in the second half as a result of both the organic revenue contribution from new and expanded contracts including Lloyds Banking Group, and the acquisition of Enara."She continued: "We are confident that we will continue to build on our long track record of sustainable, profitable growth."The interim dividend was up 4.5% to 4.6p (2011: 4.4p). Broker commentSeymour Pierce Analyst Caroline de La Soujeole is bullish on Mitie and commented: "In light of today's statement, we leave our full year 2013 forecasts unchanged, expecting adjusted pre-tax profits of £115.5m (capital IQ consensus £114.6m). The shares are trading on an undemanding rating of 11.8 times full-year 2013 earnings falling to 10.5 times in full year 2014 and a yield of 3.5%. In our view this rating fails to reflect the fact that Mitie is now evolving in areas with higher growth and higher margin potential. We reiterate our 'Buy' recommendation with a 330p target price."CM