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After yet another profit warning, can Mitie Group plc ever be trusted?

Shares in struggling outsourcer Mitie Group (LSE: MTO) have slumped in early deals after the company issued yet another profit warning this morning.

After warning investors back in September that operating profits for 2016 would be “very significantly lower” than the previous year, the company has revealed today that it’s writing off £117.2m relating to its home care business and the group will take a charge of £6m for restructuring. Losses before tax for the six months to the end of September total £100.4m compared to a profit of £45.1m in the year-ago period.

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Even after stripping out exceptional items, Mitie struggled to grow earnings per share for the period. Adjusted earnings per share declined 44.1% to 6.2p from 11.1p the previous year. Group revenue for the period fell 2.6%, and net debt at the end of September totalled £231.7m up from £221.8m the year before.

Management tried to reassure investors in today’s trading update by declaring that the group has a healthy sales pipeline, with potential business opportunities of £9.3bn under consideration. However, even this potentially good news is overshadowed by the fact that the company’s order book contracted from £8.5bn at the beginning of 2016 to £7.7bn at the end of September. The company has reduced its interim dividend payout from 5.4p per share to 4p per share.

Another setback 

Today’s set of results from Mitie is yet another setback in a disappointing year for the company. Mitie has issued a number of profit warnings and poor trading updates year-to-date, and investors have reacted by dumping the company’s stock. Since the beginning of 2016, shares in Mitte have lost 39% of their value excluding dividends.

And even though management has announced an overhaul of Mitie’s business today, it remains to be seen if these changes will be enough to put an end to the company’s problems. Outsourcing as a business is coming under a lot of pressure with companies bringing services back in-house, wages rising and public bodies cutting all but essential services. Mitie isn’t the only outsourcer feeling the heat.

Earlier in the year, shares in peer Capita slumped by nearly 50% over three weeks after the company issued a profit warning. Meanwhile, shares in Interserve are down by 44% year-to-date on management upheaval and negative sentiment towards the sector. And who can forget the highly publicised problems of leading outsourcers Serco and G4S last year?

The bottom line 

All in all, I wouldn’t be surprised if there are more profit warnings to come from Mitie over the next 12 months. 

With this being the case, it might be best for investors to avoid the company until management can clearly show that the group is back on track. Even after today’s declines the shares don’t look attractive as it’s impossible to come up with a valuation after so many profit warnings in such a short space of time.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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