Tuesday tips round-up: Mitie, Diploma and Majestic

20th Nov 2012 06:43

Tempus in The Times writes that outsourcers have had a largely positive reporting season this autumn and Mitie was sounding upbeat yesterday, even if the shares, which went above 300p briefly last week, fell 10p to 280p because of profit-taking. Revenues were up by 5.6% to £1,027m in the first half to the end of September, with 4.3% organic growth (Mitie is not noticeably acquisitive, Enara excepted). Stripped of one-off factors, pre-tax profit came in only 2% higher at £48.8m, although the interim dividend is up 4.5% to 4.6p. The markets in which Mitie operates are tough, with corporate customers focused on cost-cutting, but the order book stands at £9bn, with 72% of next financial year's revenues already secured. The pipeline of potential work is down a little, reflecting two large contracts that now will not be won. Mitie shares sell on a little more than 11 times' earnings. Although the company has its detractors in the City, who believe this is too high a rating, it looks about right for now. Hold. Tempus writes that there has been a slew of disappointing trading updates in the past few weeks from industrial companies so there is a degree of relief when one such, with exposure to a wide range of industries worldwide, comes in unscathed.Diploma, which makes seals and other technical products, has two significant advantages: it sells a large proportion of its output to the aftermarket ? about 60% of revenues in the case of seals ? which is more resilient; and it counts only about half of all its sales to the United States, giving it a wide geographical spread. There are some slow spots ? British retailers are not investing as much on chilled cabinets, for which Diploma provides controls, while the German market is weak ? but demand continues to be strong from America, for seals for logging and other heavy equipment and vehicles. The company has achieved 20% compound earnings growth over each of the past five years and this continued into the year to the end of September, even if growth slackened off into the fourth quarter. Pre-tax profits were up by 17%, then, to £52.6m before one-offs. As a gesture of confidence (and Diploma seems to be able to achieve organic growth of up to 5%), total dividends are up 20% to 14.4p. The shares are on about 13 times' this year's earnings and remain a solid core holding. The Independent is inclined to buy Majestic and says it is impossible to ignore yesterday's results. For the six months ending October 1st pre-tax profits increased to £9.2m, up 4%. Total sales eased back 1.4% to £126m, but that's explained by the company pulling out of the wholesale trade to concentrate on fuelling retail growth which offers much better margins.The shares are not cheap, at 16 times full-year forecast earnings, albeit with a solid 3.7% prospective yield. A business that can do so well in a difficult economy ought to really motor if there is even a mild improvement.Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.CM