Mitie boosted by double upgrade at Investec
(ShareCast News) - Mitie got a boost on Monday as Investec upped the stock to 'buy' from 'sell' and lifted the target price to 330p from 212p.
The brokerage said the market has yet to appreciate the full extent of the potential turnaround at Mitie under new leadership.
"While execution risks remain, we see considerable upside to profitability on even a conservative assessment of possible cost savings and operating efficiencies. In a relatively short period, management has largely drawn a line under balance sheet risk and plotted a realistic path back to operating margins above 5%."
Investec's new base case assumes Mitie achieves around £35m of the planned £45m net savings by FY20E, driving upgrades to its earnings per share forecasts of 4-8%. The brokerage reckons that £10m of the total savings target have already been secured during FY17 and on this basis, its FY18E-20 EPS estimates are 7-12% above current consensus.
Investec pointed out that strengthening the balance sheet has been a key area for management and said it believes material progress has already been made. Its analysis suggests Mitie can reach the target 2.0x average net debt/EBITDA by FY20, down from 3.5x in FY17.
In addition, the brokerage argued that the company's discount to its facilities management peers should narrow.
At 1000 BST, the shares were up 5.8% to 289.50p.