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Mitie rallies on RBC Capital upgrade to 'outperform'
Outsource Mitie got a boost on Thursday as RBC Capital Markets lifted its stance on the stock to 'outperform' from 'sector perform', although it cut the price target to 200p from 210p.
"There is still much to do at Mitie and the outsourcing sector has developed an unnerving consistency to disappoint. That said, the group looks to be focused on the right things (clients, costs and cash), has a market leading position and is not reliant on the public sector."
RBC said that assuming the company's £45m cost-saving programme, Project Helix, begins to pay off and the medium-term margin targets become more realistic, then there would be significant upside to its forecasts.
The bank said that while Mitie's end markets remain highly fragmented and with the demise of Carillon and question marks against other providers, there should be the opportunity for scale players such as Mitie to take market share.
It also likes the fact that Mitie is much less reliant on the UK public sector than its peers. The sector, an area of the market where RBC sees continued risk in the near term, accounts for around 25% of Mitie's group revenues.
"This turnaround will not be without its challenges, but if Mitie can navigate a slow market and overriding concerns about its balance sheet, this could prove to be an attractive entry point."
At 1320 BST, the shares were up 7.3% to 175p.