Restore has more than recovered from pandemic hit

Restore (RST) started out storing companies’ documents in warehouses. Now it has a digital business, an IT recycling arm and an office-moving service. Covid-19 restrictions affected most of its business lines in 2020, but the impact of the pandemic on working practices could create tailwinds in the coming years.

Records management, which still makes up around 60 per cent of revenue, saw organic growth of 5.6 per cent. To improve margins, management has invested in larger sites to help consolidate boxes and hopes to drive down property costs by around 25 per cent. Cost savings contributed to a 2.2 percentage point increase in the group operating margin to 20.7 per cent in the second half of the year.

The push towards digitisation will eventually reduce demand for record management. To mitigate this, Restore has launched a digital service that scans and stores documents in the cloud.  Last year, digital revenue doubled to £36.9mn.

The IT recycling arm also almost doubled revenue to £28.1mn. When companies invest in IT they need help to securely recycle their old systems. Covid-19 has encouraged more IT investment, which should help Restore achieve its ambition of trebling this division's revenue to between £80mn and £100mn in the medium term.

Broker Peel Hunt is expecting 2023 adjusted earnings per share of 30.3p in 2023, which gives an affordable 2023 price/earnings ratio of 14. The broker’s confidence in growth comes from the £260mn exit run rate, which is 21 per cent higher than before the pandemic. Synergies from eight acquisitions made this year will also help push margins up. Buy.

Last IC View: Hold, 467p, 27 Jul 2021