On Monday, Stifel updated its outlook on Mitie Group PLC (MTO:LN) (OTC: MITFY), increasing the price target to £1.45 from the previous £1.35 while reiterating a Buy rating on the stock.
The firm's decision follows Mitie's announcement of a robust financial performance for the fiscal year 2024, where it raised its adjusted operating profit guidance to at least £200 million, an increase from the prior forecast of more than £190 million.
Mitie's revenue for the fourth quarter showed a 10% year-over-year increase, attributed to a strong performance in its Projects division. Consequently, for the entire fiscal year 2024, the company expects revenues to grow approximately 11% to at least £4.5 billion, with organic growth contributing 7% and inorganic growth 4%.
Specifically, Projects revenue is anticipated to exceed £1 billion, marking a rise of over 20% from the previous year.
The improved revenue projections, combined with effective margin enhancement initiatives and efficient management of cost inflation, have led to an expected adjusted operating profit of over £200 million, signifying a 23% year-over-year growth.
This translates to an operating margin of around 4.5% for the fiscal year 2024, with the second half of the year reaching approximately 5%.
Additionally, Mitie's year-end net debt is projected to be significantly lower than anticipated, around £85 million, benefiting from higher profits, process improvements, and a timing advantage in working capital.
The company has also declared a further £50 million share buyback program, adding to the £100 million already returned to shareholders through buybacks over the past two years.
Stifel noted Mitie's exceptional performance against a subdued UK economic environment and increased its adjusted earnings per share (EPS) estimates for fiscal years 2024 and 2025 by 6.6% and 3.1%, respectively. The full-year results are scheduled to be released on June 6.
Stifel's positive stance is influenced by Mitie's ability to consistently convert profit into free cash flow, which is expected to support ongoing share buybacks and potentially accretive mergers and acquisitions in the medium term. The firm finds the company's valuation, with a one-year forward price-to-earnings ratio of around 9.7x, appealing for a business with strategic flexibility.
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