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Restore boosts margin with efficiency programme

Its operating margin jumped to 21 per cent in Q2 due to a reduction in staff costs.
July 27, 2021
  • It reinstated its dividend at 2.5p per share.
  • Made £80.9m of acquisitions in the first half of the year.

Restore (RST) has used the pandemic as a chance to streamline its business. The data management and services group has lowered costs by consolidating its property, restructuring its staff and bulk ordering diesel for its 500 trucks. The result of this is an H1 2021 operating margin of 18.5 per cent, which is decently ahead of 16.2 per cent in 2020.

Trading slowed down in 2020, in line with the decline in overall UK economic activity. Therefore, the 19 per cent increase in H1 revenue should be seen as a return to the pre-pandemic trading levels rather than a big sales boost. The 21 per cent jump in adjusted Ebitda is promising though, and is due to the efficiency improvement programme generating an operating margin of 21.3 per cent in Q2 of this year – up from 14.9 per cent in Q1.

The optimistic view is that Covid-19 has encouraged Restore to become a more efficient business and this will filter through to profits when its revenues start rising above their pre-pandemic levels. The business reported an annualised run rate for revenues in excess of £250m. If that proves to be correct and it can maintain its 21 per cent margin from Q2, then it should post some healthy figures for the year.

The sceptical view is that these are short-term measures to help boost the company’s valuation. On 22 July, it rejected a £743m bid from business services and software supplier Marlowe. The company didn’t mention the annualised run rate in its previous half-year report, so it clearly wants to communicate its growth potential. The lowering of employee costs partly came from a reduction in headcount and although it has improved margins temporarily, it might be difficult to maintain as the company grows.

It has bounced back well and Marlowe’s last bid is still more than its current value. Hold.

Last IC View: Hold, 470p, 22 July 2021

RESTORE (RST)    
ORD PRICE:467pMARKET VALUE:£ 638m
TOUCH:460-485p12-MONTH HIGH:500pLOW: 280p
DIVIDEND YIELD:0.5%PE RATIO:NA
NET ASSET VALUE:190p*NET DEBT:81%
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
202089.5-3.10-3.800.00
20211068.901.502.50
% change+19---
Ex-div:16 Sep   
Payment:15 Oct   
*Includes £321m in intangible assets or 235p a share.