SMALLER COMPANIES: Service group set to clean up

THE building industry may be in the doldrums, but that has not prevented maintenance services group Mitie from putting together a remarkable sequence of sales and profit increases. Success has come from targeting the refurbishment market and from a highly effective system (not based on share options) for motivating management. Profits have risen seven- fold since 1990, with no sign of any loss of momentum. Rather the contrary with chairman David Telling commenting that there are signs of firming in parts of the market for the first time since the group went public at the end of the 1980s.

The business was formed in 1987 by Mr Telling, who had previously built up the HAT Group into a business with a pounds 240m turnover before it was taken over by BET in 1986. A stock market quote was obtained in 1988, when the group reversed into the cash-rich quoted "shell" company, Highgate & Job. The following year, the name was changed to Mitie.

At this stage, the business was still tiny; sales and profits for the year to 31 March 1989 were pounds l0m and pounds 353,000 respectively, against a just reported pounds 125m and pounds 4.6m. But the ambitions were already colossal, with Mr Telling nursing what, to almost anyone else, must have seemed the wildly improbable dream of building a group with a turnover of pounds 300m and 10 per cent profit margins.

Cleaning is not necessarily up there with architecture as a career choice to brag about to mates at the pub. But Mr Telling and his long-time colleague, managing director Ian Stewart, have had great success in putting together a highly motivated team that delivers high levels of service to a loyal customer base.

The key is a combination of autonomy and the ability to make serious money. Mitie (which stands for Management Incentive Through Investment in Equity) sets up private companies with groups of individuals who put in effort, contacts and cash in return for some 40 per cent of the company. Mitie holds the rest, giving it control. When the business starts to perform, the management can swap their minority for shares in Mitie, typically on a formula of 10.5 times post-tax earnings.

Some two thirds of the group's issued capital is held by management and employees, of whom 10 are paper millionaires. It is a caricature to describe what Mitie does as cleaning. It provides a whole range of maintenance, painting and engineering services for what can become sizeable clients - IBM spends approaching pounds 3m on a range of services supplied by Mitie.

Other clients, such as BHS, have also built strong relationships within the group, typically based on confidence from years of dealing with the same individuals. This can have slightly bizarre effects as nationwide customers insist on dealing with the same people - so Mitie South East can find itself called to refurbish stores in Scotland.

Much of the outperformance has come from targeting the refurbishment market. Changes of ownership, such as Sainsbury's Homebase buying Texas Homecare or legislation freeing up the betting industry to brighten up betting shops, all stimulates refurbishment spending and creates opportunities for groups such as Mitie.

A further boost should also come from the acquisition of Securicor's cleaning business, which has some pounds 10m of turnover. Mitie is notoriously lean on overheads and expects to be able to cut costs sharply at the Securicor operation.

The shares, at 238p, have already risen a long way from the low of around 70p in 1990 and may look demandingly priced on an historical p/e ratio of 19.5 and a yield of 1.6 per cent. However, the general air of confidence at board level suggests that there is still plenty of growth ahead.

Based on the first three months' trading, turnover is said to be running at pounds 160m with a further small improvement in margins expected. Last year, they rose from 3.4 per cent to 3.7 per cent. If they make it to 4 per cent, that would imply profits of pounds 6.4m for 1995/96, which is ahead of forecasts of around pounds 6.2m and would drop the p/e to 15.5.

Earnings quality is good with a solid base of recurring income and margins would still be way short of Mr Telling's targets. The shares could reach pounds 5 over the next two years.

Suggested Topics
PROMOTED VIDEO
Life and Style
techCould new invention save millions in healthcare bills?
Sport
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
Voices
A meteor streaks across the sky during the Perseid Meteor Shower at a wind farm near Bogdanci, south of Skopje, Macedonia, in the early hours of 13 August
voicesHagel and Dempsey were pure Hollywood. They only needed Tom Cruise, says Robert Fisk
News
peopleEnglishman managed quintessential Hollywood restaurant Chasen's
Life and Style
food + drinkHarrods launches gourmet food qualification for staff
Arts and Entertainment
Michael Flatley prepares to bid farewell to the West End stage
danceMichael Flatley hits West End for last time alongside Team GB World champion Alice Upcott
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Life and Style
Horst P Horst mid-fashion shoot in New York, 1949
fashionFar-reaching retrospective to celebrate Horst P Horst's six decades of creativity
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
i100
Life and Style
Black Ivory Coffee is made using beans plucked from elephants' waste after ingested by the animals
food + drinkFirm says it has created the "rarest" coffee in the world
Arts and Entertainment
Jamie T plays live in 2007 before going on hiatus from 2010
arts + entsSinger-songwriter will perform on the Festival Republic Stage
Life and Style
food + drinkThese simple recipes will have you refreshed within minutes
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

C#.NET Server Side Developer (C#, XML, WCF, Unit Testing,SQL)

£30000 - £40000 per annum + benefits+bonus+package: Harrington Starr: C#.NET ...

Junior Database developer (SQL, T-SQL, Excel, SSRS)

£20000 - £30000 per annum + benefits+bonus+package: Harrington Starr: Junior D...

Business Analyst - Banking - London - £550 - £650

£550 - £650 per day: Orgtel: Business Analyst - Traded Credit Risk - Investmen...

Data Centre Engineer - Linux, Redhat, Solaris, SAN, Puppet

£55000 per annum: Harrington Starr: A financial software vendor at the forefro...

Day In a Page

All this talk of an ‘apocalyptic’ threat is simply childish

Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
Mafia Dons: is the Camorra in control of the Granite City?

Mafia Dons: is the Camorra in control of the Granite City?

So claims an EU report which points to the Italian Mob’s alleged grip on everything from public works to property
Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Once the poor relation, the awards show now has the top stars and boasts the best drama
What happens to African migrants once they land in Italy during the summer?

What happens to migrants once they land in Italy?

Memphis Barker follows their trail through southern Europe
French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
Frank Mugisha: Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked

Frank Mugisha: 'Coming out was a gradual process '

Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked
Radio 1 to hire 'YouTube-famous' vloggers to broadcast online

Radio 1’s new top ten

The ‘vloggers’ signed up to find twentysomething audience
David Abraham: Big ideas for the small screen

David Abraham: Big ideas for the small screen

A blistering attack on US influence on British television has lifted the savvy head of Channel 4 out of the shadows
Florence Knight's perfect picnic: Make the most of summer's last Bank Holiday weekend

Florence Knight's perfect picnic

Polpetto's head chef shares her favourite recipes from Iced Earl Grey tea to baked peaches, mascarpone & brown sugar meringues...
Horst P Horst: The fashion photography genius who inspired Madonna comes to the V&A

Horst P Horst comes to the V&A

The London's museum has delved into its archives to stage a far-reaching retrospective celebrating the photographer's six decades of creativity
Mark Hix recipes: Try our chef's summery soups for a real seasonal refresher

Mark Hix's summery soups

Soup isn’t just about comforting broths and steaming hot bowls...
Tim Sherwood column: 'It started as a three-horse race but turned into the Grand National'

Tim Sherwood column

I would have taken the Crystal Palace job if I’d been offered it soon after my interview... but the whole process dragged on so I had to pull out
Eden Hazard: Young, gifted... not yet perfect

Eden Hazard: Young, gifted... not yet perfect

Eden Hazard admits he is still below the level of Ronaldo and Messi but, after a breakthrough season, is ready to thrill Chelsea’s fans
Tim Howard: I’m an old dog. I don’t get too excited

Tim Howard: I’m an old dog. I don’t get too excited

The Everton and US goalkeeper was such a star at the World Cup that the President phoned to congratulate him... not that he knows what the fuss is all about
Match of the Day at 50: Show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition

Tom Peck on Match of the Day at 50

The show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition