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RWS opens new markets

The group has been growing steadily, and with recent acquisitions the upside looks better than ever
January 18, 2018

RWS Holdings (RWS) is an intellectual property and translation company, helping companies translate and file patents in new jurisdictions, search and monitor patent filings and - with the recent acquisition of Moravia - translate branding and communications to fit in new cultures. In an increasingly globalised world the group’s services are more and more in need, as can be seen by its stellar growth in recent years.

IC TIP: Buy at 483p
Tip style
Income
Risk rating
Low
Timescale
Long Term
Bull points
  • Broad-based organic growth
  • Cross-selling opportunities
  • Analyst upgrades
  • Low debt
Bear points
  • Expensive against history
  • Challenges in CTi acquisition

According to the group’s most recent annual report, patent translation and filing accounted for 65 per cent of revenues, followed by 20 per cent for life sciences - which focuses on translation services for pharmaceutical, biotech and medical device companies - 10 per cent for commercial translation and 5 per cent for patent search and monitoring, known as “Information”. These numbers exclude the post-period acquisition of Moravia, which marked the group’s entry into the localisation market, but gives a good impression of how key patents are to the group’s top line. In this respect, the trends are positive.

Figures from the World Intellectual Property Office showed 7.3 per cent growth in patent applications filed under the Patent Cooperation Treaty in 2016, the fastest increase since 2011 and the seventh consecutive year of growth. Most of these filings come from the US, but China is growing quickly.

The acquisition of Moravia opens a key opportunity for the group’s future growth. Moravia counts five of the largest tech companies in the US as clients. As these companies race to expand their operations into China, this will open up opportunities for the group to cross-sell its other services. The group announced the acquisition of Moravia back in October, prompting analysts at Numis to upgrade their EPS forecasts for 2018 and 2019 by 15 per cent and 17 per cent, respectively. When the full year results were released in December, Numis upgraded their recommendation to a buy.

 

 

In its most recent results, adjusted operating profit jumped 36 per cent, thanks to a combination of positive currency movements and the acquisition of life sciences business Luz. The business has surprised since acquisition, exceeding expectations and clocking up sales of £17.4m. However CTi, an earlier life sciences acquisition, faced some challenges in the year as it renegotiated several key customer contracts. The group is planning to expand its life sciences operations into Asia Pacific in 2018 to take advantage of growth in the region’s pharmaceutical sector.

RWS HOLDINGS (RWS)   
ORD PRICE:483pMARKET VALUE:£ 1,320m
TOUCH:483-487p12-MONTH HIGH / LOW:559p300p
FORWARD DIVIDEND YIELD:1.8%FORWARD PE RATIO:26
NET ASSET VALUE:58p*NET DEBT:13%
Year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20159522.78.14.9
201612230.610.85.6
201716443.314.26.5
2018**31165.317.77.5
2019**34270.318.98.5
% change+10+8+7+13
NMS:1,000   
Matched Bargain Trading    
BETA:0.37   
* Includes intangible assets of £150m, or 55p a share **Estimates Numis