Demand for consultant engineers, which is what RPS (RPS) does, is notoriously cyclical. As a result, their order books are short and the mainstay of their work - planning for large construction projects - depends on economic upswing. Europe's hankering for austerity over the past few years means not even the public sector has provided a refuge. Even so, genuine value, based on resilience and long-term growth over the economic cycle, is available in RPS's shares.
- Resilient track record
- Highly cash-generative
- Dividend growth set to continue
- Rating far off cyclical peak
- Slowdown in Australia
- Weak trading in Europe
As attested by its record, when it comes to resilience over the cycle, RPS can walk the walk as well as talk the talk. There is no clearer indication of this than its dividend record. RPS's dividend growth has averaged 15 per cent a year for 19 years on the trot (equivalent to doubling every five years).
True, RPS cannot buck the economic cycle, and underlying EPS fell from 2008's peak of 18.9p to 15.8p in 2010. But this 17 per cent fall was much better than many rivals managed and, given the group's strong cash generation and its robust balance sheet, was not enough to challenge the dividend growth record. It is also hard to see why this dividend growth rate shouldn't be maintained for a 20th year now that the company's "flexibility" is sending profits in the right direction again. Indeed, RPS has just reported a record year in 2012, with its underlying EPS up 17 per cent to 19.5p, a new record.
| RPS (RPS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 248p | MARKET VALUE: | £545m | |
| TOUCH: | 247-248p | 12-MONTH HIGH/LOW: | 259p | 197p |
| DIVIDEND YIELD: | 3.0% | PE RATIO: | see text | |
| NET ASSET VALUE: | 170p | NET DEBT: | 4% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 444 | 48.6 | 15.8 | 4.20 |
| 2010 | 462 | 42.5 | 14.8 | 4.83 |
| 2011 | 529 | 40.5 | 13.5 | 5.56 |
| 2012 | 556 | 40.2 | 11.9 | 6.40 |
| 2013* | 611 | 44.3 | 12.3 | 7.40 |
| % change | +10 | +10 | +3 | +16 |
Normal market size: 2,000 Matched bargain trading Beta: 0.8 *Investec Securities forecasts | ||||
That said, the trading environment feels a lot more fragile than it did when RPS was last setting new EPS records. However, that presents investors with a buying opportunity. RPS's shares are rated at just 12 times forecast underlying earnings for 2013 from broker Investec Securities. That's measly compared with, say, the 27 times at which they traded during the euphoria of 2007.
True, a rating like that won't return in a hurry. Even so, RPS is using its flexibility to generate more business from the energy sector and outside Europe. Energy contributed 56 per cent of 2012's underlying operating profit compared with 37 per cent in 2008, and 70 per cent of profit now comes from outside Europe. Those markets still look promising, but there is also potential trouble - most notably a slowdown in Australia's resources market.
RPS's bosses remain confident about 2013 all the same, albeit with a view that profits will be weighted towards the second half. The track record suggests they deserve some trust. What's more, other areas the group is exposed to continue to look healthy, especially oil and gas exploration. And there are hopes that a slowdown in Australia will be shortlived; besides, RPS has taken action to minimise its effect.
