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On Wednesday, Goldman Sachs started coverage of Mitie Group PLC (LON:MTO:LN) (OTC: MITFY), a leading facilities services provider in the UK, with a Neutral stock rating and a price target of £1.50. The firm recognized Mitie’s significant position in the market, holding a 13% share and providing a range of services including cleaning, security, integrated facilities management (IFM), and technical engineering services. With a market capitalization of $1.8 billion and an impressive "GREAT" financial health score according to InvestingPro, the company has demonstrated strong operational capabilities.
The company has shown a commendable performance from FY22 to FY24, excluding revenues from COVID-19 related services. It achieved approximately 10% organic growth per annum, which is a notable increase compared to the roughly -3% organic growth per annum from FY16 to FY20. This growth has been attributed to Mitie’s strategic repositioning to focus on more profitable segments within facilities management, which has also enhanced its execution track record. Recent data shows revenue growth of 15.25% in the last twelve months, with a healthy return on equity of 30%.
Goldman Sachs analysts project that Mitie will maintain its growth trajectory, forecasting a strong, above-consensus organic revenue growth of approximately 7% over FY26 (YE March). This optimistic outlook is supported by Mitie’s secured revenue pipeline, with over 50% already contracted, and the company’s ability to continue passing on pricing increases. InvestingPro analysis suggests the stock is currently undervalued, trading at an attractive P/E ratio of 12.42 and showing strong potential for continued growth. Subscribers can access 8 additional ProTips and comprehensive valuation metrics to make more informed investment decisions.
Despite the positive forecast for revenue growth, Goldman Sachs expressed caution regarding near-term margin trends due to the upcoming increase in employer National Insurance rates set to take effect in April. This change is expected to impact the visibility of the company’s margin trends in the near term. The initiation of coverage and the setting of the price target reflect Goldman Sachs’ balanced view of Mitie Group’s prospects, recognizing both its strong market position and the challenges it faces. The company maintains a moderate debt level with a debt-to-capital ratio of 0.19, while delivering a solid free cash flow yield of 13%.
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