Renew's low-risk model drives results

Even in the technical world of construction, Renew Holdings (RNWH) is at the dull end of the market.

It doesn’t announce major project wins to build towers or power plants, rather places on framework agreements for maintenance programmes with titlessuch as CP7 (rail), AMP7 (water) or RIS2 (highways).

These are less risky than big-ticket contracting, though, with agreements mainly allowing for inflation to be passed through. Renew has used the steady cash flows these generate to reinvest – the £15.6mn acquisition of water specialist Enisca in November was its eighth over the past decade.

Even after funding this, it finished the first half with net cash (excluding leases) of £17mn, having generated cash flow from operations of £24.1mn (2022: £22.9mn). It also started the second half well, with its £890mn order book 15 per cent ahead of the same period last year.

This means there is scope for more deals. “We continue to be on the lookout”, chief financial officer Sean Wyndham-Quin said. “We’re seeing a lot of opportunities, but there’s nothing which has met our threshold.” 

Shore Capital said Renew enjoys “a very high level of visibility”, with 70 per cent of forecast sales typically in its order book. This has helped it to either meet or beat consensus profit forecasts each year since 2006.

As such, the broker’s analysts view the company’s current share price of 12 times forecast earnings as “anomalously cheap”, although this is just about in line with its five-year average. But given the fact that Renew has generated an 18 per cent compound annual growth rate in earnings per share over the past 12 years, the shares still seem good value. Buy.

Last IC View: Buy, 670p, 29 Nov 2022