Facilities management mammoth Mitie Group (LSE: MTO) released full-year results today. Could the update push the FTSE 250 incumbent to new heights? Perhaps, but I can see that the Mitie share price has already been doing well in recent months.
Let’s dig deeper!
Flying high
There’s a very good chance you’ve experienced the facilities management prowess of Mitie when using a public service across the UK. This includes buildings such as hospitals, to give one example.
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At a time when public funds are under scrutiny due to economic pressures, and with a general election coming up, Mitie shares have been doing very well.
Over a 12-month period, the shares are up 26% from 94p at this time last year, to current levels of 119p.
FY results dissected
Today’s update made for exceptional reading, in my view. The subheading atop the statement read “A record year of delivery”. A bullish start if ever there was one. The confidence and good news continued to flow.
Breaking down my main takeaways, Mitie said that all medium term targets were met, or significantly exceeded. Revenue increased by 11% compared to the same period last year. The same could be said for operating profit and operating margins, up by 30% and 4.7%, respectively.
Moving on, the business confirmed it had secured contract renewals at a level not seen before. Plus, Mitie confirmed its balance sheet is in a strong position. This has allowed a final dividend of 3p per share. Furthermore, a share buy back scheme worth £50m is underway too.
The only blot on the update for me was the fact that debt levels increased from £44m to £81m. This is probably the biggest risk from an investment perspective for me moving forward. Debt is costlier to service and pay down during times of higher interest rates, like now. There’s a chance that investor confidence and returns could be hurt.
What I’m doing now
The other bearish factor is that competition in the facilities management industry is intense. One of the reasons for this is potentially lucrative government contracts, as well as low barriers of entry. If Mitie were to lose a couple of key contracts to rivals, earnings and returns could be hurt.
Moving to the bull case, I’m buoyed by Mitie’s update. The business looks like it’s on a good financial footing, and is rewarding shareholders too. A dividend yield of 2.7% is decent. However, I do understand that dividends are never guaranteed. Plus, the shares look decent value for money on a price-to-earnings ratio of 15. If this level of performance continues, I can see Mitie shares heading upwards.
Overall, I think Mitie shares look like a good opportunity at current levels. Coming off the back of great performance, and potentially good times ahead based on contract renewals, I would be willing to buy some shares when I next can.
