Broker tips: Mitie, Rolls-Royce

24th Jun 2024 15:10

(Sharecast News) - Shares in facilities management and professional services company Mitie were on the rise on Monday after Deutsche Bank lifted its target price for the stock following the group's better-than-expected annual results.

Results on 6 June revealed that record revenues of £4.51bn for the year ended 31 March, up 11% year-on-year, while adjusted operating profit surged 30% to £210m.

EBITDA came in at £268m, up from £214.5m the year before, ahead of the group's own £200m target and 5% above Deutsche Bank's forecast, while free cash flow beat analysts' estimates by 3%, surging to £158m from £66m.

"With the business having made a positive start to FY25E we upgrade FY25-27E EPS by 2-5%," said analyst James Beard.

"We expect the UK General Election to have a relatively minor impact on growth in the near-term, and we do not expect a possible Labour administration to meaningfully change the public sector contracting environment."

Deutsche Bank kept a 'buy' rating on the stock, which was up 2.1% at 119.6p by 1222 BST, putting its year-to-date gains at more than 22%.

Analysts at Jefferies hiked their target price on shares of Rolls-Royce, pointing to its most recent trading update, which they said implied the potential for positive surprises as regarded the engineer's free cash flow guidance.

So much so that they expected the engineer would be able to hit its 2027 FCF guidance one year ahead of plan thanks to improved civil After Market margins.

They also noted the upcoming key catalysts for the share price in the form of the Farnborough airshow between 22-28 July and the company's first half results on 1 August.

All told, they raised their target price for the shares from 530.0p to 580.0p, on the back of 4-9% upgrades to their estimates for Rolls's earnings per share.

Their recommendation was kept at 'buy'.

They also said that cash returns were "nearing". Hence,, they also raised their valuation multiples closer to their 'bull' case.

Those multiple were 19 times for Civil, a 5% free cash flow yield, against 17 times and 5.5% previously.