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A Renew(ed) sense of purpose at the half-year mark

The engineering services group continues to build steadily and predictably.
May 25, 2016

More of the same at the half-year mark for Renew (RNWH), a provider of multidisciplinary engineering services. Renew continued to drive up its order book, while strengthening its balance sheet in the period under review. Gross profits ticked up by 1 per cent, although profitability metrics make for better reading when amortisation charges are discounted. With its adjusted operating margin widening from 3.9 per cent to 4 per cent, Renew remains well positioned to achieve its 4.5 per cent target in the 2017 financial year.

IC TIP: Buy at 362p

Overall, both management and shareholders can be pleased with progress through to March, particularly given double-digit organic growth from its key engineering services division, all the more impressive when you consider the group delivered a similar growth rate in the same period last year. As we highlighted at the FY2015 results, the group's gas replacement programme continues to underperform, but that's set against overall progress in the energy, environmental and infrastructure divisions.

Cash generation remains impressive, with a net inflow of £6.38m at the operating level. As a consequence, net debt has been pared back to £4.2m from nearly £14m a year earlier. The group is well on the way to becoming cash-positive by the year-end. With flexibility afforded by the balance sheet and a decent cash pile, it would be surprising if we don't see further bolt-on acquisitions in complementary areas of activity.

WH Ireland expects profits of £21.2m for the September year-end, leading to EPS of 27.5p, against £19.6m and 25.7p in FY2015.

RENEW HOLDINGS (RNWH)
ORD PRICE:362pMARKET VALUE:£223m
TOUCH:360p-366p12-MONTH HIGH:418pLOW: 301p
DIVIDEND YIELD:2.0%PE RATIO:16
NET ASSET VALUE:50p*NET DEBT:14%

Half-year to 31 MarchTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20152527.710.02.25
20162658.811.42.65
% change+5+14+14+18

Ex-div: 2 Jun

Payment: 4 Jul

*Includes intangible assets of £59m, or 96p a share.