Mitie Shares (LON:MTO) Could Have Room To Run as Analyst Backs Growth Strategy

Mitie Group shares (LON:MTO) are down 2.68% today, yet have received a boost in the resumption of coverage by Stifel with a ‘Buy' rating and a lofty price target of 190p.

This endorsement comes after Mitie's completion of the acquisition of Marlowe, a move that Stifel believes establishes Mitie as a dominant player in the attractive £7.6 billion UK facilities compliance market.

The Marlowe acquisition is a pivotal element in Stifel’s bullish outlook. Announced on June 5, the deal involved Mitie acquiring the compliance and risk management services provider for approximately £366 million in a combination of cash and shares.

While Mitie's shares initially dipped 10% upon the announcement as investors digested the near-term impact of suspending a £125 million share buyback to finance the deal, analysts now see the long-term strategic rationale as compelling. The acquisition is expected to significantly enhance Mitie’s capabilities in the compliance sector, aligning with its broader growth objectives.

Mitie has also been actively transitioning towards a “facilities transformation” model, emphasizing technology-driven services such as robotic cleaning, remote monitoring, and drone-based security. This strategic shift aims to deliver higher-margin services compared to traditional labor-intensive offerings. For the fiscal year ending March 31, 2025, Mitie reported an 11% increase in annual profit to £234 million, securing a record £7.5 billion in new contracts, bringing its total order book to £15.4 billion.

Despite these positives, some challenges remain. While revenue rose 14.34% to £5.08 billion, net income declined by 19.71% year-over-year to £101.4 million. The renewal rate also dropped to 59% due to the loss of two public sector contracts.

“The Marlowe acquisition is a game-changer for Mitie, positioning them as a clear leader in a high-growth market. While there are integration risks to consider, the long-term potential for synergy and cross-selling opportunities is significant.”

Overall, Stifel's renewed ‘Buy' rating reflects a belief that Mitie is well-positioned to capitalize on its strategic initiatives and deliver sustained growth in the coming years. The 190p price target suggests significant upside potential from current levels, yet the company will need to execute will in order to reach this mark judging from recent sentiment.