Here are two of the recent top picks.

1. An evolving SaaS business

The analyst team at Bank of America has flagged Kainos Group (LSE:KNOS) as a potentially top stock to consider in 2026, upgrading its recommendation from Underperform to Buy.

This change of tone’s pretty drastic. But looking at the company’s recent achievements, it’s not hard to see why. Following its latest results, Kainos is now standing on a record contracted backlog of £396.9m alongside £227.9m in bookings – 27% higher than a year ago.

Digging deeper, the business is benefiting from structural tailwinds in public sector spending, particularly within the NHS and wider government-backed AI initiatives. But the firm’s relatively new software-as-a-service (SaaS) offer that piggybacks the Workday platform is also picking up steam.

Its SaaS arm has reached £77.5m in annual recurring revenue as of September 2025, on track to surpass £100m by the end of 2026, and over £200m by 2030. And with order and revenue momentum building in North America, Kainos’ growth trajectory looks like it’s accelerating.

This promising outlook is why I’ve already snapped up shares for my own growth portfolio. However, it’s important to recognise the risks. Given the state of the UK’s finances, public sector spending could be vulnerable to budget cuts, handicapping Kainos’ growth potential.

Its commercial software does provide some revenue diversification. However, these too could be exposed if economic conditions deteriorate – something growth investors need to consider carefully.

2. Opportunities in facilities management

Mitie Group‘s (LSE:MTO) another business among growth shares that institutional investors have on their radars. The team at Peel Hunt has even issued a 191p share price target, suggesting potential double-digit growth could be on the horizon.

Just like Kainos, Mitie’s been delivering some robust results of late. Thanks to a combination of organic and acquisitive growth, management’s delivered solid double-digit revenue growth while simultaneously securing a record £3.8bn in total new contract awards.

Yet this could be just the tip of the iceberg. Thanks to its transformational Marlowe acquisition last August, management added over £300m in annual high-margin revenue. And with £30m in expected cost synergies, both operating profits and free cash flow generation are expected to step up significantly throughout 2026 and beyond.

However, acquisitions don’t always pan out. Digesting Marlowe seems to be progressing well so far, but there remains significant integration risks.

Unexpected disruptions and culture clashes often create unforeseen costs and headaches for acquisitive businesses. And with fierce competition within the facilities management sector, any missteps could create opportunities for Mitie’s rivals.

Nevertheless, given the group’s emerging strength and prudent leadership, this business could also be worth mulling. Of course, there are plenty more growth shares with promising potential to explore.

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Today’s (23 July) first-quarter trading update suggests there may be more to come from the facilities management and maintenance company.

Winning and acquiring business

In the three months to 30 June, overall revenue grew by 10.5% year on year. The trading momentum arose because of “significant” contract wins and renewals in both the public and private sectors. But on top of that, last year’s acquisitions added to the top line, and there were also increases in variable fee pricing.

Chief executive Phil Bentley said the company intends to invest this year in its Facilities Transformation three-year plan. The directors expect it to “accelerate growth and deliver superior financial returns”.

Part of the plan will involve adding more key accounts, projects and “infill” acquisitions, Bentley said.

In the meantime, Mitie has “made a good start” with profit margin enhancement initiatives. There will likely be around £20m of cost savings in the current trading year, and the directors think the operating margin of the business will increase over the medium term.  

But the £50m share buyback programme that started in April will neutralise some of those potential gains to the business. On top of that, the company just reported that net debt rose to £182m compared to just £81m on 31 March 2024.

I’d be happier to see net debt falling. This is a business with a lot of cyclicality in its operations and that’s an ongoing risk for shareholders. I reckon the business ‘should’ be building up its cash reserves during the good times to help see it through the almost-inevitable bad times.

Aiming for higher returns

Overall, though, debt levels are modest. But the management of borrowings is a potential risk area for shareholders to keep an eye on going forward. After all, the company is acquisitive as well as cyclical, so there will likely be big demands on future cash flows.

In one example, Mitie has committed to acquire ESM Power for £5.5m and the deal is set to complete on 31 July. It’s a high voltage electrical engineering business. The directors believe the move will enhance Mitie’s expertise in the “growing” high-voltage power connections market.

The ongoing aim is to “target higher growth, higher margin” acquisitions to increase the capabilities of the business in the areas of buildings infrastructure, decarbonisation, fire, and security.

Meanwhile, City analysts expect normalised full-year earnings to decline by around 24% in the current trading year before rebounding in the year to March 2026. Patchy annual earnings are a multi-year feature of the business and another indicator of its cyclicality.

With the share price near 121p, the forward-looking price-to-earnings multiple for the current year is around 11 falling to just under 10 the year after.

That’s not an excessive valuation and the business might have been overlooked by some investors. So, on balance and despite the risks, I’m inclined to research further.

The business looks attractive to me because of its ongoing cyclical recovery and longer-term growth prospects as it hopefully continues to tilt towards higher-return operations.

The post Revenue up 10% and accelerated growth potential for this overlooked FTSE 250 company appeared first on The Motley Fool UK.

Let’s dig deeper!

Flying high

There’s a very good chance you’ve experienced the facilities management prowess of Mitie when using a public service across the UK. This includes buildings such as hospitals, to give one example.

At a time when public funds are under scrutiny due to economic pressures, and with a general election coming up, Mitie shares have been doing very well.

Over a 12-month period, the shares are up 26% from 94p at this time last year, to current levels of 119p.

FY results dissected

Today’s update made for exceptional reading, in my view. The subheading atop the statement read “A record year of delivery”. A bullish start if ever there was one. The confidence and good news continued to flow.

Breaking down my main takeaways, Mitie said that all medium term targets were met, or significantly exceeded. Revenue increased by 11% compared to the same period last year. The same could be said for operating profit and operating margins, up by 30% and 4.7%, respectively.

Moving on, the business confirmed it had secured contract renewals at a level not seen before. Plus, Mitie confirmed its balance sheet is in a strong position. This has allowed a final dividend of 3p per share. Furthermore, a share buy back scheme worth £50m is underway too.

The only blot on the update for me was the fact that debt levels increased from £44m to £81m. This is probably the biggest risk from an investment perspective for me moving forward. Debt is costlier to service and pay down during times of higher interest rates, like now. There’s a chance that investor confidence and returns could be hurt.

What I’m doing now

The other bearish factor is that competition in the facilities management industry is intense. One of the reasons for this is potentially lucrative government contracts, as well as low barriers of entry. If Mitie were to lose a couple of key contracts to rivals, earnings and returns could be hurt.

Moving to the bull case, I’m buoyed by Mitie’s update. The business looks like it’s on a good financial footing, and is rewarding shareholders too. A dividend yield of 2.7% is decent. However, I do understand that dividends are never guaranteed. Plus, the shares look decent value for money on a price-to-earnings ratio of 15. If this level of performance continues, I can see Mitie shares heading upwards.

Overall, I think Mitie shares look like a good opportunity at current levels. Coming off the back of great performance, and potentially good times ahead based on contract renewals, I would be willing to buy some shares when I next can.

The post Can record FY results continue to boost the already rising Mitie share price? appeared first on The Motley Fool UK.

Today’s (6 June) full-year report from the facilities maintenance, management and improvement company has many positives. I think the stock looks worth consideration as a play for both income and growth.

Broad-based growth

In the 12 months to 31 March, revenue rose by 11% year on year, and free cash flow came in higher along with operating profit.

Meanwhile, the firm’s order book improved by almost 18% and the pipeline of contract opportunities has been shooting up too.

The directors had enough confidence in the good performance and the outlook to increase the total shareholder dividend for the year by a whopping 38%.  

With the share price near 122p, the historical yield is almost 3.3%. Meanwhile, the record shows strong annual increases in the shareholder payment since the pandemic. And City analysts predict a further mid-single-digit percentage increase for the current trading year.

Chief executive Phil Bentley said Mitie is a cash generative business with a “robust” balance sheet and is investing in “accelerated” growth. On top of that, the company has been returning “surplus” funds to shareholders via share buybacks.

However, it’s worth noting that net debt had risen by around 84% to £81m by the end of the trading year. Commenting on the situation, the company said positive free cash flow generation had been “offset” by acquisitions and ongoing shareholder returns.

That reads a bit oddly, to me. It suggests the business has borrowed money to fund share buybacks and dividends. If that’s the case, it could be a risk for shareholders to keep an eye on.

A volatile sector

Although the level of borrowings looks like it’s under control, at least for the time being. Nevertheless, I’d prefer a net cash figure on the balance sheet while this business is trading well to help it get through any leaner times.

If cash flow ever falters, dividends may be reduced. If that happens, the share price will likely fall too leading to a losing investment for shareholders.

The scenario’s quite likely at some point because the firm operates in a sector with quite a bit of cyclicality. Volatility shows up in the share price chart and the dividend record — like many companies, Mitie stopped payments in the wake of the pandemic.

Nevertheless, Bentley said all the company’s divisions are performing well.

Looking ahead, City analysts expect normalised earnings to remain essentially flat for the current trading year. However, I’m optimistic about the multi-year prospects for the general economy and believe that the upswing in Mitie’s business may continue for some time.

Meanwhile, the forward-looking earnings multiple for the current trading year to March 2025 is around 11. That compares favourably with the rating of the FTSE All-Share index of about 12.5, making the company’s valuation look fair.

On balance, and despite the risks, I see Mitie as worth further research and consideration now with a view to adding some of the shares to my diversified portfolio.

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Two options I reckon investors should be considering are Somero Enterprises (LSE: SOM) and Mitie Group (LSE: MTO). Here’s why!

Somero Enterprises

The business designs, assembles, and sells patented laser-guided equipment to help with spreading and levelling concrete. Hardly riveting stuff, let’s be honest. However, there’s a multitude of applications that I can think of. These include house building, roads, all types of construction.

I must admit I was initially drawn to the stock by its forecast dividend yield of 6%. This is higher than the FTSE 100 average of 3.9%. However, I do understand that dividends aren’t guaranteed.

Furthermore, an enticing valuation on a price-to-earnings ratio of just 11 is attractive.

The firm could capitalise and boost earnings when infrastructure and house building activities surge post-economic malaise. Now could be a good entry point, in my eyes. A healthy balance sheet is vital for the firm, as it is a smaller business, with a market cap of close to £200m. As a rule of thumb, smaller businesses are prone to more volatility.

From a bearish view, Somero is at the mercy of cyclical headwinds. A bit like now, when building, construction, and similar activities are subdued due to volatility, there is the potential for performance and payouts to dip. This could result in a less-than-stable journey of growth and payouts.

Mitie Group

There’s a very good chance you’ve experienced Mitie’s facilities management prowess when utilising a public service, like a hospital, for example. Some of its services include management, maintenance, and more.

It would be remiss of me not to mention Mitie’s struggles during the pandemic period. This resulted in poor performance and a shaky financial situation. The good news is that recent trading, and a turnaround in fortunes has resulted in a much healthier cash position, with a good footing to have a good crack at growth moving forward.

Personally, Mitie’s energy infrastructure services could be where exciting growth could come from. The business is helping its vast client base with their net-zero ambitions. This could be a money spinner in the future as the green revolution ramps up.

At present, the shares trade on a price-to-earnings ratio of 14. This is lower than the industry-average ratio of just over 17.

Looking at risks, I have one main gripe that could impact Mitie negatively. The business employs thousands of people across its sprawling operation. Any potential rise in wages – linked to the current economic situation – could have a serious impact on profitability. This could dent investor sentiment, as well as any future returns.

On another note, competition in the industry is intense, especially with a lack of barriers of entry into it. However, although this can squeeze margins, I’m not too concerned. This is primarily due to Mitie’s long track record, and existing reputation and relationships.

The post 2 under-the-radar UK shares investors should consider snapping up appeared first on The Motley Fool UK.

Retail sales in both January and February were higher than analysts’ expectations, helping to boost the economy and subdue recession fears. This follows a revised ‘stable’ rating for the UK from credit agency Fitch. With the outlook improving, stock prices are likely to keep rising, so now could be a good time to consider grabbing some cheap shares.

I’m thinking about this promising mid-cap one.

Mitie Group

Mitie Group (LSE:MTO) is a FTSE 250 stock that’s flown under my radar for too long. Up 37% in the past five years, it’s been a strong and stable performer during a period when many share prices fell. It’s already recovered all its Covid-related losses and is now on a trajectory towards it maybe regaining the highs it enjoyed in 2014.

While Mitie Group might not be a household name in the UK, it’s a company that’s involved in many of our day-to-day activities. Headquartered in London’s famous Shard skyscraper, it provides facilities management and energy infrastructure services to organisations across the country.

Why do I think it’s a good investment?

Mitie is heavily invested in decarbonisation efforts, with a focus on helping organisations achieve their net-zero goals through sustainable energy initiatives. I’d hazard a guess that this is the main factor driving the company’s recent growth.

Analysts anticipate the global decarbonisation market to grow at a compound annual growth rate (CAGR) of around 14% for the next 10 years. The company is well-positioned to secure a decent chunk of this profit, and appears highly motivated to do so.

Financials and Balance Sheet

With £147m in debt offset by £411m in equity and £180m in cash, Mitie’s balance sheet is solid. Using a discounted cash flow model, analysts estimate the shares to be undervalued by 56% and forecast an increase of around 23% in the coming 12 months.

This evaluation is reinforced by a trailing price-to-earnings (P/E) ratio of 15, below the 17.7 average of its peers. Although notably, it’s slightly higher than one of Mitie’s main competitors, Serco Group, with a P/E ratio of 10. However, Serco’s earnings are forecast to decline 5.5% a year going forward, while Mitie’s are forecast to grow 12.6%.

Risks

Mitie operates in a very competitive industry and faces challenges from new entrants that could squeeze the firm’s margins. Although the economy is enjoying a mild recovery, rising wages could strangle the profits of labour-intensive businesses like Mitie Group.

Recent performance certainly gives the impression that the group is doing well but this is no guarantee of future growth. It will need to ensure it can outshine competitors. And it must continue to secure the lucrative contracts that helped it get this far.

With a debt-to-equity (D/E) ratio of 0.7, its debt situation isn’t a risk currently. However, if economic tightening limits spending on decarbonisation efforts, Mitie Group could be burdened with extra debt.

Overall, I think it would make a great complement to my already profitable Serco shares. While I don’t have capital to buy the shares right now, they’re firmly on my watchlist.

The post With the FTSE 100 nearing 8,000, UK shares won’t be cheap for long appeared first on The Motley Fool UK.

Generally defined as businesses with a share price of less than £1, these firms also have fairly small market capitalisations. After trawling through the indices, I’ve found two companies that I think could add value to my portfolio and may take off. Let’s take a closer look.

Restaurant Group

Restaurant Group (LSE:RTN) owns and operates restaurants around the UK. Some of these are well-known names, like Wagamama and Frankie & Benny’s. 

Unsurprisingly, the company was hit hard during the pandemic as dining outlets were forced to close. The share price plummeted from around 130p in February 2020 to a low of just 23p. It currently trades at 49p. 

There are now strong signs that the firm is heading back to some degree of normality. For the 19 weeks to 15 May, sales at Wagamama were up 15% compared to the same period in pre-pandemic 2019.

What’s more, its pub sales increased by 10% on the same basis. I’m also encouraged by the fact that net debt has fallen by £6m since the end of 2021. If these trends continue, the share price could also increase. 

The business has a cash balance of £220m, which would place it in a strong position in the event of any further lockdowns.

Inflation is a risk to this company, however. It has forecast that food and drink inflation could reach 9% or 10% and this could eat into future balance sheets. 

Mitie Group

The second penny stock that I’m considering is Mitie Group (LSE:MTO), a firm that specialises in outsourcing and facilities management.

Currently trading at 64p, the business announced in June that it was reinstating its dividend. It will pay 1.8p per share and I find this potential income stream attractive. Furthermore, the company simultaneously initiated a £50m share buyback scheme, an indication that it’s financially healthy.

Recent contract wins from the likes of Netflix and Hammerson have complemented its current contracts at UK military bases overseas. 

This has resulted in a swing from a 2021 fiscal year pre-tax loss of £14m, to a pre-tax profit of £52m for the 2022 fiscal year. 

Revenue also increased by 58% over the same period, indicating that demand for facilities management is recovering. There could be even more growth in this sector as more offices reopen in the future.

The business is, however, under investigation by the Competition and Markets Authority (CMA) over a Home Office contract. If any foul play is found, this could dent the share price. 

I think that these two penny stocks could see their share prices growing sharply in the coming months, given greater demand for restaurants and facilities management. With both sectors likely set for continued growth, I’ll soon be buying shares in both, while always being aware of the risks.       

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Robust update

Let me share the details. For the third quarter of the current financial year, which is the three months ending 31 December 2021, the company saw a solid 51% increase in revenues compared to the same time last year. A little over 10% of this was from Covid-19-related contracts, which was higher than expected. The company, which provides facilities management services, and that includes cleaning services, saw increased demand in these during the pandemic. 

In light of this, the company now expects operating profit of £160m-£165m, up from £145m-£155m earlier. This is the second time in the past year that the company has upgraded its profit forecast! If that is not a reason for the stock to rally, I do not know what is. 

Stumbling blocks for the penny stock

On the other hand, I do see two stumbling blocks to further increases in the stock’s price. The first is that the increase due to Covid-19 contracts was a one-time bump up. This might not be present next year, which in turn could reduce the company’s growth. Of course, it is possible that as the recovery gathers pace, the company’s fortunes could stay resilient. But I am not holding my breath. This is especially so considering that the company has run-up losses a couple of times in the past five years.

Next, its share price has already risen quite a bit. The stock is presently trading at a price-to-earnings (P/E) ratio of 34 times, which is fairly high if you ask me. Some of the most robust FTSE 100 stocks are trading at lower P/Es right now. Basically this says to me that the company’s profit increase is probably already priced in. This in turn means there is limited scope for its stock price to rise. 

Also, its share price is still way below its pre-pandemic levels. If it were really on a rising curve, I think it would have moved way past by now given the strong showing in its financials. To be fair, part of the ostensible decline is because it had a rights issue in July 2020. This reduced its per share price in one go. However, it has had plenty of time since to recover, which has not happened. In the last six months, in fact, it has fallen. Added to this is its elevated P/E, which makes it hard for me to imagine that the stock has won investors’ favour. 

Would I buy the FTSE 250 stock?

I still think this is a good stock for me to buy for the long term. But just to get a better idea of where it is at, I will wait until the next financial release to figure out a good time to buy it. 

The post This FTSE 250 penny stock was yesterday’s biggest gainer. Here’s why appeared first on The Motley Fool UK.

As such, here are three top penny stocks I would acquire for the year ahead. 

Stocks to buy in 2022

The first company is the photo booth and coin-operated washing machine business Photo-Me (LSE: PHTM). I have always liked this enterprise because it is highly cash generative. Once it has bought and installed its photo booths, it does not need to spend significant sums maintaining the asset.

As a result, the company has a robust balance sheet and relatively attractive profit margins. It has also paid out a lot of cash to investors with dividends in the past. The firm last paid a dividend in 2018. As profits rebound after the pandemic, I think the corporation will likely look to restore its payout. 

Unfortunately, Photo-Me also has some challenges to overcome. Consumer trends are unpredictable, and the market is becoming more competitive. These are the biggest threats to the group’s business model right now. It has been able to navigate these threats in the past, but past performance should never be used to guide future potential. 

Penny stocks for growth

One theme I am building exposure to in my portfolio for 2022 is construction. The sector has quickly recovered from the pandemic, which is good news for companies like Speedy Hire (LSE: SDY). 

Analysts believe the company’s earnings will jump around 30% this year and a further 20% in 2023. This will take profits to a multi-year high. In fact, if the corporation hits these projections, it will earn more in the next two years than it did in the last six. I think these numbers illustrate the company’s potential over the next couple of years. 

Of course, there is no guarantee the company will hit these growth targets. If the economy starts to struggle again, the construction sector will be the first to suffer in any downturn. Speedy’s growth could come shuddering to a halt in this scenario. This is the most considerable risk facing the corporation right now. 

A return to outsourcing

The final company I would buy for my portfolio of penny stocks is outsourcer Mitie (LSE: MTO). Over the past couple of years, this company has struggled to earn a consistent profit. That will change over the next two years, according to City analysts.

If the corporation can return to profit and stay there, I think the stock deserves a re-rating. The shares are selling at a single-digit price-to-earnings (P/E) multiple. If the company returns to growth, the market may reward the stock with a higher group multiple. This could lead to a substantial return on the current share price. 

Still, this is far from guaranteed, which is why I would only buy the stock as a speculative position for my portfolio. Some challenges it could encounter as we advance include higher wage costs resulting from inflation and higher interest costs. 

The post 3 penny stocks to buy for 2022 appeared first on The Motley Fool UK.

DX Group: trading suspension on the horizon

The first of them is DX Group (LSE: DX). It provides mail and parcel delivery services in the UK and Ireland. The company’s share price has seen an unbelievable 37% drop in share price in today’s trading so far. It is now at the lowest levels seen in a year. It had reached multi-year highs earlier this year. But all the progress has completely been wiped out now. 

And I am discouraged about why this is happening as well. DX Group is undergoing an internal corporate investigation. Because of this, it was unable to publish its annual report in time. It further says that it will not be able to do so before 2 January 2022. By then six months would have elapsed from the end of the financial period in consideration. As per the rules of AIM, where the stock is listed, this would result in trading suspension in the company’s shares. This can only be lifted once the report is published. 

There is no way of knowing what the investigation will reveal. Also, we do not know when the company will publish its annual report. So, I think it is clear why the share price has crashed. Also, I do not think that we can hold out much hope for the coming days. This is a pity considering that for the full-year ending 3 July 2021, the company reported robust growth. It reported a 16% increase in revenue from the year before and it also swung back into profits. I am not going to buy it now, but it is still on my watchlist. 

Mitie Group: buy on dip

Another penny stock I have long liked is the FTSE 250 facilities management services provider Mitie Group (LSE: MTO). Its stock price is still around 60% higher than what it was last year, but it too lost some momentum recently. It released its results last week for the six months ending 30 September. The next day, its share price fell 8%. However, it has started inching back up. And I reckon it could rise more. It does say that its expects short-term Covid-19 related contracts to reduce “significantly”. But I do not see that as reason enough for the share price to drop.

The rest of the results look pretty good to me. Its revenue is up 36% and its operating profits have increased by over 10 times from last year. It also expects a stronger second half of the year, which bodes well for its stock price. I’d still buy it while it is still low. 

The post Would I buy these 2 high-performing penny stocks for 2022? appeared first on The Motley Fool UK.