BULL POINTS:
■ Long term scope for nuclear de-commissioning
■ Focus on growth areas of infrastructure
■ Scope to widen profit margins
■ Amco acquisition already contributing strongly
BEAR POINTS:
■ Debt has risen
■ Profits hit by exceptional costs
Renew Holdings suffered from the sharp slowdown in construction markets in 2009. But rapid action to refocus the business on specialist engineering support for the UK's infrastructure providers has turned performance around.
Renew has sought out those parts of the nation's infrastructure that look least at risk from public spending cuts, such as railways, energy and the environment. The £15m acquisition of Amco in February, which pushed Renew's much debt higher, brought in agreements with National Rail and a presence in the renewables sector with two agreements with wind farms.
First-half results for 2010-11 showed a 12 per cent increase in revenues and a 32 per cent leap in underlying operating profits with only one month's contribution from Amco. Furthermore, the group's order book was 16 per cent higher at £334m, with budgeted revenue for the full year already secured; profit margins also improved – from 1.2 per cent to 1.4 per cent. That's still pretty thin, but Renew's bosses think there is scope for further improvement as the group's exposure to specialist engineering grows. In the first half, this activity accounted for just below half total revenue, but should grow to 60 per cent in 2012, when it will generate more than 80 per cent of operating profits.
| IC TIP RATING | |
|---|---|
| Tip style | Growth |
| Risk rating | Medium |
| Timescale | Long term |
| What do these mean? Find out in our | |
The Amco acquisition means the company can offer a wider geographical service, including nationwide coverage in its rail division. This business has 21 agreements for engineering and maintenance. In energy, Renew's nuclear engineering business, Shepley Engineers, is the biggest mechanical and electrical engineer at the Sellafield site, where it recently won another three-year contract for de-commissioning projects. Shepley also won a £4m contract for de-commissioning at Springfields, a nuclear processing plant, during the first half. De-commissioning nuclear plants is long-term work with high barriers to entry, leaving Shepley well placed.
| ORD PRICE: | 76p | MARKET VALUE: | £45.5m | |
| TOUCH: | 75-76p | 12-MONTH HIGH/LOW: | 80p | 30p |
| DIVIDEND YIELD: | 3.9% | PE RATIO: | 8 | |
| NET ASSET VALUE: | 20p | NET DEBT: | 88% | |
| Year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 391 | 6.7 | 8.8 | 3.0 |
| 2009 | 317 | 1.2 | 0.6p | 3.0 |
| 2010 | 290 | 4.0 | 4.6 | 3.0 |
| 2011* | 350 | 1.6 | 0.8 | 3.0 |
| 2012* | 340 | 8.5 | 9.6 | 3.0 |
| % change | -3 | +431 | +1,100 | Nil |
Normal market size: 2,000 Market makers: 8 Beta: 0.3 * Brewin Dolphin estimates (Profits & earnings not comparable with historic figures) | ||||
Renew also has 13 long-term agreements in the water sector for flood alleviation, coastal defence and land remediation; clients include Northumbrian Water and Scottish Water. Water utilities are set to turn on their capital spending as a new pricing regime, which runs until 2015, has just come into force.
The building division has been scaled back and now focuses on building social housing, high end residential refurbishment and the retail sector, primarily in the south-east of England. Its order book has shrunk from £205m a year ago to £170m, but the company has secured its budgeted revenues for this year and next. Key clients, including Tesco, remain active too, and the retail division won £20m of contracts in the first half.
