15th Apr 2024 09:51
(Alliance News) - Mitie Group PLC was praised on Monday after a strong trading update saw analysts raise earnings forecasts and increase share price targets.
Shares in Mitie, the Glasgow-based facilities management company, rose 7.6% to 120.04 pence each in London on Monday morning.
Mitie expects to report an 11% rise in revenue to GBP4.50 billion for the financial year that ended March 31 from GBP4.06 billion in financial 2023.
Operating profit of GBP200 million is expected, a 23% surge from GBP162.1 million.
Net debt as at March 31 is estimated to have increased 93% to GBP85 million from GBP44 million a year prior.
Mitie also announced a further GBP50 million share buyback programme. A share repurchase programme of the same size had been completed last month.
"We are pleased with the performance of the business in FY24, having delivered record revenue and operating profit, and an operating margin of 4.5%. Free cash flow generation has been strong, supporting our ongoing commitment to the return of surplus funds to shareholders via share buybacks," Chief Executive Officer Phil Bentley said.
"We view Mitie's performance as exceptional in a subdued UK macroeconomic backdrop," analysts at Stifel said.
The broker pointed out revenue in the fourth quarter was up 10% from the year before, against a strong comparator, supported by a good performance in Projects.
Given this revenue performance, good progress on margin enhancement initiatives and strong management of cost inflation, Stifel noted adjusted operating profit is now expected to be more than GBP200 million, up 23% year-on-year.
Stifel also highlighted net debt, "well below its expectations," and the share buyback.
"We expect the group's strong [free cash flow] generation will enable it to continue undertaking buybacks and value accretive M&A over the medium term," the broker remarked.
Stifel raised its 2024 and 2024 adjusted earnings per share forecasts by 6.6% and 3.1% respectively.
The broker reiterated a 'buy' rating and increased its share price target to 145p from 135p.
It views the current valuation as "attractive for a business that can consistently turn profit into FCF over the medium term, providing strategic options."
Liberum took a similarly positive view, reiterating a 'buy' rating and increasing its share price target to 130p from 125p.
Assuming GBP4.5 billion of sales in 2024, and growing that for 3 years at 8% (including acquisitions) gives GBP5.6 billion, the broker noted.
Applying the target margin of 5% suggests an underlying earnings before interest and tax of GBP282 million should be achievable in 2027, Liberum stated.
"It is worth noting that we do not model any acquisitions until they are announced and hence there is still revenue growth and margin improvement to be gained from expected bolt on acquisition," the broker added.
By Jeremy Cutler, Alliance News reporter
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