Free share tips posted weekly! This week’s free share tip is Mitie Group.
Regular readers of cityconfidential will recall that we tipped the shares of this facilities management and professional services group last August when the share price stood at just 34.95p. Clearly, anyone who purchased the shares on the back of that tip has more than doubled their money, but even though the share price has risen significantly we believe that recent developments make the shares worth another look.
Mitie Group is the leading facilities management company in the UK. It offers a range of services including maintenance, security, cleaning and waste management and it works in both the private and public sectors. In the latter, the company works on behalf of hospitals, providing meals as well as cleaning services, immigration centres and prisons.
cityconfidential Newsletter November 2024The company has just announced the disposal of its Document Management Business to Swiss Postal Solutions for £40m and this continues the strategy of disposing of non-core businesses. The deal is expected to conclude at the end of September. Earlier this month, the group expanded its offering in the fast-growing telecoms sector with the acquisition of DAEL Ventures Limited, a leading provider of services in the UK for mobile telecoms infrastructure. The consideration paid for this business was £15m.
The most recent trading update issued by the company covered the three months to 30 June, being the first quarter of the current financial year, and revenues for the period were more than double those of 2020 for the same period at £930m. These figures benefited from the inclusion of the Interserve Facilities Management business acquired last November, but even excluding this, revenues were 36% higher. The integration of the latter has gone well with this due to be completed before the end of 2021.
Although the first quarter of the year has benefited from Covid-19 related contracts, the company has won several new contracts during this period as well as renewing many others. The directors therefore believe that these contracts combined with the gradual economic recovery will provide positive momentum going forward. Adjusted pre-tax profits for the year to 31 March 2022 could be around £100m for earnings per share on the same basis of 5.7p. This would put the shares on a prospective p/e ratio of 12.7x which does not look expensive, and this is likely to fall to around 10.7x the following year. Although any dividend payment is likely to be modest, we believe the share rating is a little miserly and rate the shares as a BUY with a share price target of 90p.
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