Revenue up 10% and rapid growth opportunities for this overlooked FTSE 250 company

Within the FTSE 250 index, Mitie (LSE: MTO) has been making changes since the recession.

Today's (23 July) first quarter trading update suggests there may be more to come from the property management and development company.

Winning and gaining business

In the three months to 30 June, total revenue grew 10.5% year-on-year. The commercial momentum came about because of the “important” contract wins and renewals in both public and private sectors. But on top of that, last year's purchases added to the top line, and there was an increase in the amount of variable costs.

Chief executive Phil Bentley said the company intends to invest this year in its three-year Facilities Transformation plan. The directors are waiting for you “accelerate growth and deliver high financial returns”.

Part of the plan will include adding key accounts, projects and “fill” purchase, said Bentley.

Meanwhile, Mtie has done it “good start” with plans to improve the profit margin. There will likely be £20m of cost savings in the current trading year, and directors think the business's operating margin will increase over the medium term.

But a £50m share buyback program which started in April will reduce some of those potential gains for the business. On top of that, the company recently reported that total debt rose to £182m compared to just £81m at 31 March 2024.

I would be very happy to see the bills go away. This is a business that is very cyclical in its operations and that is a constant risk to shareholders. I think a business 'should' build up its cash reserves in good times to help weather the almost inevitable bad times.

It aims to get maximum benefits

Overall, however, credit levels are modest. But credit management is a potentially dangerous area for shareholders to keep an eye on going forward. After all, the company is profitable and cyclical, so there may be significant demands on future cash flow.

In one example, Mitie has committed to acquiring ESM Power for £5.5m and the deal will be completed on 31 July. It is a high-powered electrical engineering business. The directors believe that this move will improve Mitie's skills in the game “growing” high-voltage power connections market.

The ongoing objective is to “target high growth, high margin” acquisitions to enhance business capabilities in the areas of building infrastructure, decarbonisation, fire, and security.

Meanwhile, City analysts expect full-year average earnings to fall by around 24 per cent in the current trading year before doubling in the year to March 2026. Annual negative earnings are part of a business's longevity and another indicator of its turnover.

With the share price close to 121p, the current year's forward price multiple of around 11 has fallen to just under 10 next year.

That is not an extreme valuation and the business may have been overlooked by some investors. Therefore, in moderation and despite the risks, I am inclined to research further.

The business looks attractive to me due to its continued sustainability and long-term growth prospects as it hopefully continues to shift towards high-margin activities.