Restore builds on digital transformation

Restore (RST) began its transformation from storing boxes of paper documents to securing digital records in the cloud over the pandemic. And Restore Digital’s revenues have now more than doubled, up 120 per cent to £31.2mn in the six months to the end of June, driven partly by a contract award from HMRC. 

It is also partly a result of management’s active acquisition strategy, with inorganic growth contributing £14.1mn – just under half – of Restore’s overall revenue growth in the last year. Three acquisitions in the latest first half, including hard-disk recovery and erasure specialist Ultratec in May, will go towards a stated goal of doubling cash profits to £150mn and hitting £450mn annual revenues over the medium term.

Chief executive Charles Bligh said the firm is “looking forward to completing further investments in H2”, on the back of a “well developed pipeline of acquisition opportunities”. By investing in larger properties that can house more boxes in one location, Restore also drove positive organic net box growth, as well as 78,000 new boxes from acquisitions. New business wins were up three times over pre-Covid levels.

Pricing could be storing up issues for the future, however. Higher-than-ordinary price rises in the first half are estimated at £1.6mn, lower than the £2.2mn cost increases. The gap “reflects the time lag of pricing increases”, and contributed to a small dip in profit margins to 18.4 per cent. At the same time, rising interest rates are leading to higher finance charges, which Restore expected to be £1mn to £2mn greater than planned for the year. This led Peel Hunt to shave 4 per cent off its full-year pre-tax profit estimates and cut its target price to 528p from 644p. We move to Hold.

Last IC View: Buy, 445p, 16 Mar 2022.