MIDAS SHARING TIPS: Mitie by name, and she is powerful by nature

Mitie is one of those companies you come across all the time, but rarely notice.

The facilities management company can clean the bathrooms at your local shopping center, manage the reception at your office, empty the sanitary bins at your child’s school, and monitor the gates that let you through to catch the morning train.

Look closely at the vans, high-visibility jackets, and uniforms you see during a daily commute and you’ll discover that Mitie, like love, really is everywhere.

Company contracts may seem like a hodgepodge on the surface, but they can be very lucrative. This week’s full-year trading update surprised the stock market higher, with the company posting a mighty £4.5bn of revenue, up 11 per cent, as well as an operating profit of at least £200 million pounds.

Chief executive Phil Bentley says Mitie will now buy back £50m of its shares, some to use for employees’ Save As You Earn scheme but the rest to return cash to shareholders.

So why is Mitie booming? Can you continue cleaning? To some extent, the company is confident that it will continue to operate as usual, as we always need people to clean, replace toilet paper rolls, and staff prisons.

But Bentley’s statement this week provides a clue about the company’s future priorities and where it hopes further growth can be found.

While Mitie’s website still describes the company as “the UK’s leading facilities management and professional services company”, this week’s trading update was “the UK’s leading facilities transformation company”. Transformation is where Bentley believes the money is: the icing on the cake rather than day-to-day activities.

Examples of facility transformation projects include Plan Zero Consulting, where Mitie will help a company achieve its Net Zero goals by doing everything from helping convert its vehicle fleet to electric vans to helping it optimize its carbon reporting systems.

Meanwhile, its Connected Workspace initiative helps companies analyze data from their buildings, promising it will help improve productivity, reduce costs and improve work environments.

Mitie’s range of public and private clients helps it get through tough economic times, but that doesn’t mean this investment is risk-free. Mitie’s association with the immigration services means he never leaves the headlines, and there is a risk this could damage his reputation.

Inflation above the target is also a double-edged sword for Mitie. Although the company can change the price of some of its contracts when prices increase, corresponding increases in wages affect its results.

Before the pandemic struck, Mitie issued four profit warnings due to higher minimum wage payments for its staff, as well as concerns over Brexit, and these risks have not completely disappeared.

That said, risks are mitigated by lower-than-expected net debt and strong cash flow generation, while a healthy pre-order pipeline offers some visibility for the future.

Mitie says it is seeing sustained demand for work on its transformation projects and has recently signed new contracts with clients as diverse as London Southbank University, advertising agency WPP and Eastern Police Force. She has also seen contract renewals from HMRC, the Home Office and pharmaceutical giant GSK.

While we must wait until June for the company’s actual full-year numbers, Mitie’s statement this week was enough for analysts to upgrade their forecasts.

Liberum’s Alex O’Hanlon now expects earnings per share for this year and next to be 5 percent higher than his previous figures, while Numis’ James Beard raised his expectations for this year by 6 percent and then by 3 percent. by 2025-26.

Beard believes there could also be more positive news to come, thanks to a strong pipeline of deals.

MIDAS VERDICT: After a difficult time before the pandemic, Mitie shareholders have been well rewarded for their loyalty. Shares are up 18 percent since January and 27 percent over the past 12 months. However, many experts maintain that despite these increases, Mitie is still worth purchasing.

There are several ways to value a stock like Mitie, and by most of these metrics, the stock still looks relatively cheap. The stock also pays dividends and, on this year’s expected payout, yields about 3 percent, which is a plus for income seekers.

There is possible good news on the way. Mitie has made several acquisitions that could add more earnings to the fund, while share buybacks could increase its valuation.

The shares are currently at 116p, down from their all-time high of 172p in 2014. Most analysts expect them to rise to over 140p. Buy.

Traded in: Main market Ticker: MTO Contact: mitie.com +44 (0)330 678 0710