Investment Column: Mitie still has ample room for growth

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The Independent Online


Our view: buy

Share price: 220.4p (+10.4p)

Mitie, an outsourcing company that allows clients to hand over the running of buildings and infrastructure projects, has an enviable growth record, not to mention an eclectic array of operations.

Beyond facilities management, which includes electrical and mechanical systems such as lifts, escalators and lighting and power distribution, it also provides wheelchairs in airports and refurbishes properties.

Yesterday, it published an update for the year to the end of March, and things were once again looking strong. Revenues were up a tenth to almost £1.9bn, with growth across its various divisions. Pre-tax profits rose 15 per cent to £105.7m.

Cash flow numbers were also good, and beat analyst forecasts, with Mitie managing to slash debts from £76.5m. Investors were happy, as dividends were raised 15 per cent to 9p.

The order book was up 6 per cent to £6.8bn, followed by a pipeline of £11.4bn. The group said it is looking to "significant opportunities" in outsourcing, energy services and abroad.

The chief executive, Ruby McGregor-Smith, sees energy savings as a particularly lucrative area for the company. She said one recent contract with the Royal Free hospital would save enough money for 110 transplants a year. Not bad.

For those keeping count, significant recent wins include contracts with Rolls-Royce and Vodafone which will see the company's influence spread beyond the UK. Moreover, over 60 per cent of the company's revenues come from the private sector, which should provide ample opportunity for growth as clients look to slash costs, even if there is some uncertainty over the public sector work.

Turning to the shares, Mitie trades on a pretty thin rating of on 8.8 forward earnings. That, coupled with the 4.9 per cent dividend yield, would be enough to make us wade in. The strong performance evidenced by yesterday's results only serves to seal the case, in our view.


Our view: buy

Share price: 128p (+2p)

The last time we looked at Stobart we decided to hold back from buying as the shares looked a tad expensive. They were trading on 17 times forward earnings, which, in our view, was too much to pay despite the company posting strong first half results.

Yesterday, the logistics group issued full-year figures, with pre-tax profits falling short of market hopes. The cause was the harsh winter weather, with the snowfall causing road and rail closures. In other words, the problems were beyond Stobart's control.

The market recognised this, and the share price rose as the focus turned to the confident outlook statement. Moreover, the stock is down more than 20 per cent since the recent February peak. That, unsurprisingly, has hit the valuation. At under 14 times forward earnings, it is time to buy.


Our view: buy

Share price: 67.5p (-1.25p)

Vectura may have fallen back following the release of its full-year results, but that did not mean the drug maker's figures were not impressive.

The performance of the group, which specialises in inhaled treatments, beat expectations, and although it is still making a loss after tax, the amount has been significantly reduced. The main boost came from a deal struck last year with GlaxoSmithKline over the licensing of patents from which it is expected to see £20m, plus royalties when the drugs are launched.

Earlier this year, Vectura reached 86p, the culmination of a run during which it added nearly 160 per cent over the course of nine months. Since then it has tracked back somewhat, but the near future looks as if it could be very positive indeed.