Will Outsourcing Giants Take Investors To The Cleaners?

THE WEEK: Morningstar columnist Rodney Hobson explains why he’s staying clear of Capita and Mitie, despite recent share prices gains

Rodney Hobson 16 June, 2017 | 10:35AM
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It’s now more than 20 years since the outsourcing craze really kicked off but investing in such services has been pretty patchy. The sector has been beset with accusation of exploiting workers and milking government contracts. It has also been competitive.

Two quite different companies, Mitie (MTO) and Capita (CPI), presented what I felt were uninspiring updates this week, but ones that were well received in the stock market. Caution is required.

Office cleaning and security contractor Mitie plunged to a £43 million loss in the year to 31 March, and while that was partly down to write-offs you should not ignore the 14% fall in operating profits on a like-for-like basis. The final dividend was scrapped and the current year’s payout will be rebased to 4p compared with 12p in 2015-16.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Capita PLC49.41 GBX0.53
DFS Furniture PLC260.00 GBX-2.62
MITIE Group PLC71.00 GBX0.00

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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