Mitie’s share price is less than 40p. Here’s why I would buy now
The Motley Fool
Published Jul 24, 2020 11:36
Mitie’s share price is less than 40p. Here’s why I would buy now
I enjoy a contrarian buy and I believe Mitie (LSE:MTO) is just that right now. The UK’s leading facilities management and professional services company is a major player in the industry. It employs approximately 50,000 people who look after over 2.5m assets.
Mitie is one of Britain’s largest government contractors. Its customer base also includes large, diverse blue-chip organisations, from banks and retailers to hospitals and schools.
Why has Mitie’s share price dipped? In an ambitious move, Mitie bought out Interserve’s facilities management division for £271m. In conjunction with this move was a rights issue in which Mitie diluted its stock. Worth £201m, the 805m new shares will help in reducing debt levels at the group.
When the market crashed, Mitie lost over 50% of its share price value. Rewind back to the beginning of the year and its per share price was close to 80p before plummeting close to 35p. The share price began to recover, reaching close to 50p before the rights issue was announced. Currently it stands at less than 40p, which I feel is a brilliant price for a company I see as having lots of value.
Value to be had Mitie’s deal with Interserve (LON:IRV) opens up a new series of services. These include building maintenance, fire safety, waste management, cleaning, catering and security.
Most importantly perhaps, Mitie’s footprint in the public sector will increase, which is a big step towards long-term success and growth, in my opinion. In addition to the increased exposure to the public sector, it will pick up many other private sector customers it once competed for against Interserve.
FY19/20 results were released by Mitie at the end of June. Revenue rose by 4% and operating profit was up 8%. Another essential takeaway for me was that net debt had reduced by £75m. This shows me a business with a plan.
The Covid-19 pandemic has opened up new opportunities for companies such as Mitie. There is an increased necessity for hygiene to be at the forefront of how people work. The majority of large companies will use the easiest solution, which is outsourcing to external companies. Typically in the past, larger-scale customers commit to multiple-year contracts, which in some cases can be worth millions of pounds.
My verdict I have long considered Mitie to be a great company from an investment perspective. With the addition of Interserve, the sky could be the limit in respect of growth and long-term success. Revenue generated between the combined companies will exceed £3.5bn. With earnings per share close to 8p, this gives Mitie a price-to-earnings ratio of close to 5.
Get The App
I do not believe that the pandemic will leave Mitie completely unaffected. But what I would say is that as market conditions change along with the world around us, facilities management companies will be in demand. I think Mitie would be good for a long-term investor’s portfolio. The price is cheap as chips right now, and I am not worried by short-term volatility. In the long term, I wouldn’t be surprised if it climbed to a higher level once more.
The post Mitie’s share price is less than 40p. Here’s why I would buy now appeared first on The Motley Fool UK.
Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020
First published on The Motley Fool
Written By: The Motley Fool
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.