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Renew maintains track record

Earnings beat analysts' expectations
November 29, 2022
  • Cash used to make new acquisition
  • Measures taken to handle wage inflation

The chief executive of Renew Holdings (RNWH), Paul Scott, wasn’t surprised that chancellor Jeremy Hunt reaffirmed the government’s commitment to its £600bn infrastructure spending plans during the recent Autumn Statement, although he was somewhat relieved.

“There were a number of references throughout the statement that gave us some comfort that commitment will prevail,” he said.

Like others in the contracting market, Renew’s share price had taken a knock following September’s disastrous 'mini' Budget. Although it is less exposed to big capital spending programmes than its peers, there could have been knock-on effects if other commitments – such as electrifying certain rail lines – had been shelved. As it is, there seems little for investors to worry about.

Full-year earnings came in 9 per cent higher than consensus estimates, margins improved despite cost pressures and cash generation was strong – it finished the year with net cash (excluding leases) of £20.2mn, from debt of £13.7mn a year earlier.

It has already put this to use, spending £15.6mn on the purchase of Enisca, a company that provides mechanical, electrical, control, instrumentation and automation services to the water industry. This is a service line Renew doesn’t currently offer and Enisca is already involved a joint venture with the J Browne water contracting business Renew bought last year.

In May, we moved Renew’s shares to a hold, concerned about the potential impact of higher wages on margins and employee turnover. Although still an issue, it has handled things well – holding two pay reviews a year rather than one, offering discretionary bonuses and weighting increases towards lower-paid workers. These seem to have done the trick.

Renew’s shares also remain reasonably priced at 11 times broker Numis’s forecast earnings of 60p. At that price, they offer good, defensive exposure to what should be a steady, but growing market. Back to buy.

Last IC View: Hold, 711p, 17 May 2022

RENEW (RNWH)    
ORD PRICE:670pMARKET VALUE:£528mn
TOUCH:666-673p12-MONTH HIGH:874pLOW: 550p
DIVIDEND YIELD:2.5%PE RATIO:13
NET ASSET VALUE:189p*NET CASH:£5.7mn
Year to 30 SepTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
201854114.710.010.0
201960027.029.611.5
202062032.134.08.33
202179140.840.816.0
202284949.550.617.0
% change+7+21+24+6
Ex-div:09 Feb   
Payment:03 Mar   
*Includes intangible assets of £161mn, or 204p a share