RPS acquires Canadian consultant

Multi-disciplinary consultancy RPS has increased its exposure to Canadian oil, gas and potash sectors through the acquisition of Boyd Exploration Consultants, paying a maximum consideration of C$13.9m (£8.5m) for the company. Headquartered in Calgary, Boyd offers consulting expertise on international mining, geological investigation projects and environment advice through its wholly owned subsidiary Wildside. For the year ending 31 March 2010, Boyd reported revenues of C$12.6m (£7.7m) and adjusted pre-tax profits of C$2.88m (£1.76m).

RPS is to acquire the total share capital of the group for a cash sum on completion of £4.46m, with three further payments totalling £4m to be made in the next three years subject to operational targets being met. RPS chief executive Alan Hearne said the acquisition builds on the group's takeover of Aquaterra, which gave RPS exposure to Australia, and that management continues to look for further opportunities.

The group's operations are now truly global with offices in the UK, Ireland, Netherlands, Americas, Australia and Asia Pacific. Half-year results last month saw fee income increase 3.5 per cent, but operating profits fell 16 per cent to £25.4m as customers continued to push the limits on price. However, a "modest improvement in the second half is achievable" and continued geographical diversification can only be positive.

Brewin Dolphin says...

Buy. We see this acquisition as further evidence of the group's development of the energy business, but are planning to leave our current-year estimates unchanged (primarily to reflect integration costs) and expect to upgrade our 2011 pre-tax profit forecast by about £1m. Boyd operates primarily in Canada and has recently expanded into both the Canadian and international mining sectors, particularly the potash industry. It acts as a consultant and project manager on investigation projects for large, blue-chip clients, so the deal is very much in line with management's strategy to continue to develop the group's energy expertise. We also understand that Boyd's recent operating history has been solid.

Panmure Gordon says...

Hold. The oil and gas consultancy based in Canada looks to be a high-margin business, operating in a strategically important geography for RPS. We expect this transaction to marginally enhance our 2010 forecasts and have raised our adjusted pre-tax profit forecast from £47m to £47.2m and EPS estimate from 15.1p to 15.2p. We have also raised our 2011 EPS forecast by 3 per cent to 17p, based on an increase in adjusted pre-tax profit from £52.2m to £53.6m. A similar level of EPS enhancement should be seen in 2012. Our target price increases marginally to 190p, and with 12 per cent upside the shares remain in hold territory, although the return of EPS enhancing acquisitions should be seen as good news and should lead to an eventual re-rating of the shares.