- EPS has doubled over past five years
- Berenberg upgrades 2025 forecast by 9 per cent
Renew Holdings (RNWH) chief executive Paul Scott said the 10 per cent increase in organic revenue and 18 per cent gain in operating profit delivered during difficult market conditions provided “evidence of the resilience in the [business] model that I’ve talked about for years”.
Although the company hasn’t had things go completely its own way – wage pressures remain elevated, for instance – it does look to be in a better place than many of its contractor competitors. Although the government continues to assign a £600bn figure for infrastructure commitments over the next five years, that amount was frozen in cash terms in last year’s Autumn Statement. This inevitably means there isn’t enough money to do everything, and some schemes that were meant to be completed during the current five-year phase of the Roads Investment Strategy ending in 2025 have been pushed back.
Delays to new schemes mean a greater priority is placed on the maintenance of existing assets, which is where Renew makes its money – on road, rail, water and power networks.
“We’re actually seeing clients talk very confidently about increased focus and spending,” Scott said.
Renew has increased its headcount by around 10 per cent over the course of the year, as past acquisitions have provided the opportunity to expand into new areas – Scott cites winning South West Water as a client as an example. An operating cash inflow of £55mn meant net cash (excluding leases) increased by £15.5mn to £35.7mn, despite the company paying £14.6mn for the remaining half of the Enisca water business that it did not already own.
Although its share price has experienced some turbulence over the past couple of years, results have been steadily impressive – as witnessed in the doubling of its earnings per share over the past five years.
Recent gains mean Renew’s shares have broken through the 800p barrier for the first time since hitting their all-time high of 889p in September 2021. They now trade at 13 times FactSet consensus forecasts, above their five-year average of 12 times. Yet Berenberg analysts upgraded their earnings forecasts by 5 per cent for this financial year and 9 per cent for next, citing “confidence in Renew’s ability to deliver through-the-cycle resilience”. With the company also having the firepower to do more deals – it has bought TIS Cumbria, a small nuclear specialist, for £4.9mn since the year-end – other upgrades could follow. We maintain our buy position.
Last IC view: Buy, 730p, 16 May 2023
RENEW (RNWH) | ||||
ORD PRICE: | 807p | MARKET VALUE: | £639mn | |
TOUCH: | 806-810p | 12-MONTH HIGH: | 807p | LOW: 650p |
DIVIDEND YIELD: | 2.2% | PE RATIO: | 14 | |
NET ASSET VALUE: | 227p* | NET CASH: | £18mn |
Year to 30 Sep | Turnover (£mn) | Pre-tax profit (£mn) | Earnings per share (p) | Dividend per share (p) |
2019 | 600 | 27.0 | 29.6 | 11.5 |
2020 | 620 | 32.1 | 34.0 | 8.3 |
2021 | 791 | 40.80 | 40.8 | 16.0 |
2022 | 849 | 49.5 | 50.6 | 17.0 |
2023 | 961 | 58.1 | 59.6 | 18.0 |
% change | +13 | +17 | +18 | +6 |
Ex-div: | 08 Feb | |||
Payment: | 08 Mar | |||
*Includes intangible assets of £177mn, or 223p a share |