1 unexpected FTSE 250 renewable energy stock to buy now
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When I think of renewable energy stocks, many stocks come to mind. These are renewable energy producers, electric vehicle (EV) companies, miners that are digging up raw materials to be used in EVs and even petrol producers that are now diversifying into clean energy.
But I would not have thought that this particular FTSE 250 stock could be brought into the clean energy discussion. After all, it is in a completely different segment. I am talking about the Mitie Group (LSE: MTO), which is best known as a facilities management and professional services company.
Small acquisition, big significance
So why does it come into the renewables category? A few days ago, it acquired Rock Power Connections, which focuses on supplying power to EV charge points. This buy will enhance the company’s green energy solutions, which have so far involved installation of charge points.
The acquisition is relatively small, with a maximum payout expected to be £14.5m to be paid by financial year 2023 (which ends on 31 March of that year). This includes an initial payment of £10m and two more of a maximum of £4.5m in total, which are linked to performance targets. That this translates into a maximum of 0.7% of Mitie’s revenues for the financial year 2021 puts it into perspective.
The renewable energy push
Still, I think it is an important acquisition to highlight. This is because of the growing focus on renewable energy at present. The UK government has a clear 10-point plan for what it calls the Green Industrial Revolution. Big oil producers expect oil demand to start declining before the end of the decade. EV stocks listed on US exchanges exploded late last year. Poster boy Tesla has seen its stock price more than double since then, even with a recent dip.
I think these trends underline the fact that this decade may well belong to clean energy stocks. So it sounds like a strategic move on Mitie’s part to get in on the trend, which could hold it in good stead as the sector expands fast over the next few years.
What I’d do
The company’s future looked bright in any case. In another article I wrote on penny stocks today, it is one of my picks for 2022. It is ready to make profits again after last year’s pandemic blow. And its revenues have been on the rise anyway.
The one concern that I do have about the stock, and one that I have mentioned earlier as well, is its inconsistency in profit making. It has fallen into losses in three of the last five years where full-year data is available. For this reason, I will continue to keep an eye on how its earnings shape up. For now though, I think the company looks like it is doing well. And its latest acquisition appears to be a step in the right direction too. It is on my buy list now.
Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.