Broker tips: Mitie Group, Bodycote

(Sharecast News) - RBC Capital Markets initiated coverage of facilities management firm Mitie Group on Thursday with an 'outperform' rating and 195p price target. "Mitie has aligned services with high-growth macro-trends, driving a record £33bn pipeline that feeds a £16.5bn order book, having grown circa 45% since the F2025-27E strategic plan launch," the bank said.

"We see Mitie as a good defensive play, delivering 11% earnings growth (2year-CAGR) and 5%/year shareholder returns."

RBC said forecasts indicate Mitie is on track to achieve free cash flow targets of £120m and £150m in F2026E/F2027E.

"As infill M&A remains a core priority, our forecasts suggest Mitie can invest up to circa £75m/year using FCF and available debt funding, and still remain within its target leverage range of 0.75-1.5x," the bank said.

This translates to revenue and operating profit growth of about 4% a year from acquisitions, supporting return on invested capital consistently above 20%.

RBC said its forecast of about 5% F2026 shareholder return includes a dividend payout of 30-40%, and the current £100m share buyback.

"We view Mitie as currently fundamentally undervalued, and we expect a multiple re-rating on Mitie shares as it executes on its strategic plan," it said.

Bodycote shares sparked on Thursday as Barclays upgraded its recommendation to 'overweight' from 'equalweight' and lifted its price target on the stock to 765p from 635p, saying the company was "undervalued and underappreciated".

Barclays said: "Based on end market exposure, self-help supporting margin expansion, a return to earnings per share growth, underperformance versus the sector year to date, and current valuation offering an attractive entry point, we upgrade our rating."

It also noted that FY25 should be the trough year for Bodycote and that there should be a return to organic growth in FY26.