Just when it looked like it was out of the woods, Mitie has come under regulatory scrutiny, heralding the prospect of more selling of its shares. At the time of writing, the company’s stock was trading at 265.80 in London.
The UK regulator, the FCA, said it was launching an investigation into the profits warning it issued in September last year. At the time shares in the group plunged by a quarter, and it has taken several months for them to get back to that point again.
This was the first of three profit warnings for the outsourcing specialist, the beginning of a hungry winter which prompted a change in leadership and focus on cost cutting. Baroness Ruby McGregor-Smith, the company’s CEO, fell on her sword following the collapse in the share price, which wiped over £200 million off the company’s value.
“This is not the king of thing to reassure investors who are only now beginning to warm to the stock again after apparently shaking off last year’s loss,” said Neil Wilson, Senior Markets Analyst at ETX Capital.
A further investigation by the FRC (Financial Reporting Council) has also been opened, this time into Deloitte’s auditing of Mitie’s accounts. It was allegedly aggressive auditing that pushed the group into its loss last year. At the time Mitie took £88 million in charges on the chin, but it looks like the firm has further choppy waters ahead. The FCA investigation will be a further issue for investors, and we’d expect that this will be reflected in a decline in share prices.
On top of this the company’s management has already admitted there are a series of macro factors that are inhibiting its business, not least among them Brexit, lower public spending and rising wages. Mitie remains one of the most heavily shorted companies on the London market, so you will be in good company here. The key will be holding a short CFD position open when further bad news emerges.
The big question is this – is the FCA simply going through the motions, making the investigation more of an historical exercise, particularly as most of the senior management in place in 2016 has been purged, or is there something more here?
Mitie has said it is cooperating with the FCA investigation, which will take time to play out. However it is saying no more than this for the time being.
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