Mitie is one of those companies you encounter all the time, but seldom notice.
The facilities management firm may well clean the loos in your local shopping mall, run the reception in your office, empty the sanitary bins in your child’s school and control the gates that let you through to catch your train in the morning.
Look closely at the vans, hi-vis jackets, and uniforms you see during a daily commute, and you’ll find that Mitie, like love, really is all around.
Striving for Net Zero: One of Mitie’s 4,000-plus electric vans outside Edinburgh Castle
The firm’s contracts may look like a mishmash on the surface, but they can be seriously lucrative. This week’s full-year trading update surprised the stock market on the upside, with the company flagging a mighty £4.5 billion of revenue, up 11 per cent, as well as operating profit of at least £200million.
Chief executive Phil Bentley says Mitie will now buy back £50 million of its shares – some to use for the employee Save As You Earn Scheme, but the rest to return cash to shareholders.
So why is Mitie riding high – and can it continue to clean up? To some extent, the firm is relying on business as usual, as we always need people to clean up, replace loo rolls and staff prisons.
But Bentley’s statement this week provides a clue as to the firm’s future priorities, and where he hopes more growth can be found.
Where Mitie’s website still describes the firm as ‘the UK’s leading facilities management and professional services company’, this week’s trading update instead went for ‘the UK’s leading facilities transformation company’. Transformation is where Bentley reckons the money is – the icing on the cake as opposed to day-to-day activities.
Examples of facilities transformation projects include Plan Zero Consulting, where Mitie will help a company hit its Net Zero targets by doing everything from helping to convert its vehicle fleet to electric vans to helping it to streamline its carbon reporting systems.
Meanwhile its Connected Workspace initiative helps companies to analyse data from their buildings, promising that will help to improve productivity, reduce costs, and upgrade work environments.
Mitie’s spread of public and private clients helps it to ride out difficult economic times, but that doesn’t mean that this investment is risk-free. Mitie’s association with immigration services means it is never out of the headlines, and there is the risk of reputational damage from this.
Above-target inflation is also a double-edged sword for Mitie. While the firm can reprice some of its contracts when prices rise, corresponding rises in wages hit its bottom line.
Before the pandemic hit, Mitie issued four profit warnings due to higher minimum wage payments for its many staff, as well as Brexit concerns, and these risks have not entirely gone away.
That said, risks are mitigated by lower-than-expected net debt and strong cashflow generation – while a healthy forward-orders book gives some visibility for the future.
Mitie says it is seeing sustained demand for its transformational projects work and has recently signed new contracts with clients as diverse as London Southbank University, advertising agency WPP and the Eastern Police Forces. It has also seen contract renewals from HMRC, the Home Office and pharma giant GSK.
While we must wait until June for the company’s actual full-year figures, Mitie’s statement this week was enough for analysts to upgrade their forecasts.
Alex O’Hanlon, at Liberum, now expects earnings per share for this year and next to be 5 per cent higher than his previous figures, while James Beard at Numis increased his expectations for this year by 6 per cent, then by 3 per cent for 2025-26.
Beard reckons there might be further positive news to come, too, thanks to a strong pipeline of bids.
MIDAS VERDICT: After a bumpy time before the pandemic, Mitie shareholders have been well rewarded for their loyalty. The shares are up 18 per cent since January and 27 per cent over the past 12 months. However, plenty of experts argue that – despite these rises – Mitie are still worth buying.
There are various ways of valuing a stock like Mitie, and on most of these metrics the shares still look relatively cheap. The stock also pays a dividend, and on this year’s expected payout is yielding around 3 per cent, which is a bonus for income seekers.
There is potential good news in the pipeline. Mitie has made several acquisitions which could add more earnings to the pot, while share buybacks could push its valuation higher.
The shares are currently at 116p, off their all-time high of 172p in 2014. Most analysts expect them to rise to over 140p. Buy.
Traded on: Main market Ticker: MTO Contact: mitie.com +44 (0)330 678 0710
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