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Confidence returning to Restore

After a fraught few months, the group reassured with its trading in 2018
March 18, 2019

Investors would have been anxious ahead of Restore's (RST) figures for 2018. The office services group saw its share price drop sharply in mid-December after announcing that Charles Skinner, its longstanding chief executive, was planning to retire. Investors baulked again in mid-January when, in an otherwise positive trading update, management warned that its Datashred business had experienced “lower volumes than budgeted for” in 2018. However, the release of the group’s full-year numbers put paid to investors' concerns, leading the share price to jump more than a tenth, even after management announced that finance director Adam Councell was leaving the group in August.

IC TIP: Hold at 282p

The big story for the group was the acquisition of TNT Business Solutions in May. The integration process was delayed after the Competition and Markets Authority investigated the deal, before giving it the all-clear in August. Now, the combination is mostly complete, notwithstanding a few nagging IT issues. TNT was the main contributor to the double-digit revenue increase, while operating profit came in 22 per cent to the good at £41.3m, underpinned by a 147 basis point increase in the margin. Crucially, two of TNT’s three large sites predominantly service the public sector; a market management described as “immature” compared with the private sector.

Records management is the backbone of Restore’s business, accounting for about 70 per cent of operating profits, according to management. The division generates recurring revenues from storage, making annual net box growth a key indicator of progress. The group stored around 20m boxes or box equivalents at the end of 2018, up from “more than 15m” at the end of 2017. The group also saw higher levels of removal and destruction in the period following the introduction of the EU's General Data Protection Regulation.

Broker N+1 Singer noted that the timing of Mr Councell's departure was “not ideal” after a relatively unstable period, but made no changes to forecasts. It expects adjusted pre-tax profit of £41.6m this year giving EPS of 26.5p, compared with £36.5m and 23.5p in 2018.

RESTORE (RST)   
ORD PRICE:282pMARKET VALUE:£349m
TOUCH:280-284p12-MONTH HIGH:576pLOW: 253p
DIVIDEND YIELD:2.1%PE RATIO:22
NET ASSET VALUE:174p*NET DEBT:52%
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201467.56.106.402.4
201591.96.107.203.2
20161297.5017.84.0
20171729.907.105.0
201819621.015.36.0
% change+14+112+115+20
Ex-div:6 Jun   
Payment:5 Jul   
*Includes intangible assets of £262m, or 211p a share