Jefferies International has downgraded its rating for Mitie Group PLC (LON:MTO) to ‘hold’ from ‘buy’ after cutting its target price and estimates for the outsourcer following a recent trading update.
The US broker reduced its full-year 2019/2020 earnings per share estimate for the FTSE All-Share-listed group by 21% leading it to cut its target to 150p from 260p, with the shares currently trading at 137.80p each, down 1.1% on Tuesday’s close.
READ: Mitie shares tank as it expects profits to rise but order book to weaken
In a note to clients, Jefferies’ analysts pointed out that Mitie’s underlying earnings (EBITDA) guidance for full-year 2018/2019 disappointed, although balance sheet developments in the second half were encouraging.
They noted that, in its pre-close season trading statement on 28 March, Mitie warned that its order book was set to weaken by around 10% and its CEO said short-term economic worries were impacting clients' capital programmes and willingness to enter into longer term contracts.
The analysts said the group’s EBITDA guidance was weak due to more generous staff incentive schemes and an early re-tender of seven large contracts.
They concluded: "Given the flatter margin trajectory, we think investors will dwell on nearer-term valuation until there is concurrent improvement in organic revenue growth, EBITA margin, FCF, and net debt".