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PHS acquisition boosts profits at Restore

The group is looking to make further acquisitions to bolster growth
March 14, 2018

The acquisition of PHS Data Solutions in August 2016 has boosted revenue and profit growth at office services group Restore (RST). Even discounting the impact of the acquisition, revenue grew by 7 per cent organically – a creditable result. Tax credits related to share options constricted statutory EPS, but on an underlying basis EPS was up 25 per cent to 22.4p.

IC TIP: Buy at 514p

One of the drivers of Restore’s growth is that many of its divisions and businesses operate in the same market, allowing for greater cross-selling. As a result, the group has deep penetration in many of its key markets. For example, it provides services for 90 of the top 100 UK legal practices and 40 of the top 50 accountancy companies. To build on this coverage, the group is looking to consolidate the fragmented areas of its marketplace through acquisition. To this end, it has agreed £20m in committed funds and £30m in an uncommitted accordion facility, giving it total bank facilities of £111m.

Another driver of future growth is expected to be the upcoming changes to European data protection laws (GDPR), which are likely to drive demand in document storage, shredding and scanning, all areas in which Restore is a market leader.

Analysts at Peel Hunt forecast adjusted pre-tax profit of £35.7m, giving EPS of 25p in 2018 (from £31.2m and 22.4p in 2017).

RESTORE (RST)   
ORD PRICE:514pMARKET VALUE:£581m
TOUCH:510-518p12-MONTH HIGH:598pLOW: 354p
DIVIDEND YIELD:1%PE RATIO:74
NET ASSET VALUE:138p*NET DEBT:50%
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201354.05.05.91.9
201467.56.16.42.4
201591.96.17.23.2
20161297.517.84.0
20171769.76.95.0
% change+36+29-61+25
Ex-div:7 Jun   
Payment:6 Jul   
*Includes intangible assets of £194m, or 172p a share