Key talking points on why Mitie see another 25% drop
- According to Jim Artimitage of the Evening Standard, the new CEO Phil Bentley is a sort of fella goes looking for skeletons in Mitie’s cupboard to implement a massive write-down on its assets.
- Goodwill is likely to get written down by 45% because Goodwill turnover has deteriorated from 8.1X to 4.8X, helping to drag overall asset quality lower.
Therefore, a write-down of £200m from goodwill will mean shareholders’ value will fall to £206m from £450m
- Mitie is likely to see zero sales growth in the future, along with contracting earnings.
In the last five years, average sales grew 2% p.a., whereas cash profits increased by £10m.
- The company runs a net debt position close to £170m.
- Some people will say Mitie go the way of Connaught PLC, but, in my opinion, this is an unlikely scenario because it has £200m+ in undrawn debt facilities expiring in 2019.
Therefore, the target price for Mitie in the next 12 months is £1.35 to £1.50/share.