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on RNWH's web site. The tone is extremely positive, and it seems that all divisions are now performing well and have very good prospects. Plus there would appear to be room for further and material-sized acquisitions.
Here's a link:
Https://vimeo.com/776540119/e01f67df23
It's interesting to see Walter Lilly described as non-core, although the presentation commentary is effusive, describing the very healthy order books. Perhaps this would be a good time to sell it to supplement the already healthy cash flows?
Lilly's news page backs up the good news message with news of various contracts which I don't think have been posted before:
Https://www.walterlilly.co.uk/news/
Numis say Buy with a 900p target. They forecast 60.3p EPS this year, with an 18p dividend.
They also see a £27.6m cash pile (pre-IFRS16) at the end of this year.
Extracts:
"Strong FY22 results and acquisition of Enisca
Renew's FY22 results were ahead of expectation even after a positive pre-close update, and in our view reflect a business and management team that is continuing to deliver even in a toughening macro backdrop.Today's bolt-on acquisition of Enisca further enhances the Group's capabilities in Water, and serves to offer another demonstration of Renew's value-compounding business model. With the shares trading on c.11x FY23E PE and c.8x EV/EBITA, we remain positive."
"Forecasts: Reflecting the stronger than expected FY22 performance and the Enisca acquisition, we increase our FY23E EBITA forecast by 8% to £62.0m, and our FY23E EPS forecast by 9% to 60.3p. We upgrade FY24E EBITA and EPS by 6%. We forecast an FY22-25E EBITA CAGR of c.4%, noting the Group's strong track record of positive earnings momentum both organically and from M&A and a FY16-22 EBITA CAGR of 18%.
•Valuation: The shares trade on a FY23E PE of c.11x and EqFCF yield of c.7%. Given the Group's track record of compounding organic growth and accretive M&A, its strong balance sheet, and high ROIC, we believe the shares merit a premium rating relative to sector peers."
My favourite line: "It bodes extremely well for the next 20 years of this group for sure.”
This is a very well run company in a growing sector of the economy backed by massive government infrastructure spending. Gotta love it!
Continuing the interview re the £billions of funding in place for EV charging and rail electrification:
"Mr Scott said an increase in private sector interest in electrifying their vehicle fleets was another promising sign. The firm’s projects during the last year have included the delivery of Volvo bus and truck electrical infrastructure and charging projects UK wide, providing EV infrastructure for Amazon distribution facilities, the Post Office and the installation of EV and network upgrades in nine mainline Network Rail stations.
"We have made an investment in EV capability. We brought some people in and have made a significant investment that hasn’t made us a great deal of return so far but it would be wrong of a company like Renew and its subsidiaries who are so deeply embedded in UK infrastructure to ignore this opportunity.
"Actually getting the power out of the network into the EV network requires what are called Independent Connection Provisions and we have those qualifications.
"The tone of our results report on EV is a lot more positive than it has been in the past. Two things have happened – firstly, there is the Rapid Charging Fund which people are leaning on now. But more importantly we’ve seen people with big fleets greening their fleet. They are coming to market and say please help us develop our programme.”
He said the road and rail schemes both have considerable potential for the group.
"Rail electrification of that 50,000 km is going to cost £25bn to build and they have said they are going to do it by 2040. It is a complicated animal to deliver so it is not necessarily something that is going to transform the group tomorrow but the scale of these opportunities is enormous.
"The scale of the EV infrastructure plan is enormous. We are not baking it into our near-term numbers but we are getting in position.
"It bodes extremely well for the next 20 years of this group for sure.”
Good to see 700p being paid now.
There's an excellent new interview here with the CEO which lays out the huge opportunities for RNWH in rail electrification and EV infrastructure:
Https://www.yorkshirepost.co.uk/business/leeds-engineering-giant-renew-sees-major-opportunities-in-net-zero-projects-as-it-aims-to-be-major-player-in-ps25bn-rail-electrification-3937353
"Leeds engineering giant Renew sees major opportunities in Net Zero projects as it aims to be 'major player' in £25bn rail electrification
Leeds-based engineering services giant sees “enormous” opportunities in major infrastructure projects designed to help the UK achieve net zero in the coming decades, the group’s CEO has said.
Paul Scott told The Yorkshire Post that the company, which focuses on routine maintenance, repair and renewal of critical UK infrastructure, is in the process of positioning itself to be prepared for important future projects.
The company’s results, published this week, highlighted that plans to electrify the nation’s rail network have seen the group’s three rail brands form “a collaborative and unique position for Overhead Line Electrification delivery, another key strategic pillar for the group”.
Mr Scott said: “The vast majority of work we do in rail is directly contracted via Network Rail. But we have a plan in our strategic priorities to broaden our customer base.
"In the case of Transpennine and Midland Main Line upgrades, our route to market is working for consortia rather than working for Network Rail directly.
"Our ambition is to be an Overhead Line Electrification player in the future. We bought Rail Electrification Limited [a leading overhead line electrification business] so we got the badge to be an electrification expert specialist.
"They are working closely with our two rail brands offering a service we believe is going to be compelling. There are 15,000 single track kilometres to be electrified beyond these two programmes to aid to decarbonisation agenda and clean up the network and we will be a major player in that programme. This is just a start of a journey.”
The results also described the Government’s commitment to ban the sale of non-electric new cars by 2030 as “another exciting growth opportunity” for the group. They highlighted a £950m Rapid Charging Fund that has been agreed to support the rollout of at least 6,000 high powered charge points across England’s motorways and major A-roads by 2035, as well a further £500m of funding granted to support local authorities to find innovative ways to increase local charge point coverage."
Https://www.investorschronicle.co.uk/news/2022/11/29/renew-maintains-track-record/
"Renew maintains track record
Earnings beat analysts' expectations
November 29, 2022
The chief executive of Renew Holdings (RNWH), Paul Scott, wasn’t surprised that chancellor Jeremy Hunt reaffirmed the government’s commitment to its £600bn infrastructure spending plans during the recent Autumn Statement, although he was somewhat relieved.
“There were a number of references throughout the statement that gave us some comfort that commitment will prevail,” he said.
Like others in the contracting market, Renew’s share price had taken a knock following September’s disastrous 'mini' Budget. Although it is less exposed to big capital spending programmes than its peers, there could have been knock-on effects if other commitments – such as electrifying certain rail lines – had been shelved. As it is, there seems little for investors to worry about.
Full-year earnings came in 9 per cent higher than consensus estimates, margins improved despite cost pressures and cash generation was strong – it finished the year with net cash (excluding leases) of £20.2mn, from debt of £13.7mn a year earlier.
It has already put this to use, spending £15.6mn on the purchase of Enisca, a company that provides mechanical, electrical, control, instrumentation and automation services to the water industry. This is a service line Renew doesn’t currently offer and Enisca is already a joint venture with the J Browne water contracting business bought last year.
In May, we moved Renew’s shares to a hold, concerned about the potential impact of higher wages on margins and employee turnover. Although still an issue, it has handled things well – holding two pay reviews a year rather than one, offering discretionary bonuses and weighting increases towards lower-paid workers. These seem to have done the trick.
Renew’s shares also remain reasonably priced at 11 times broker Numis’s forecast earnings of 60p. At that price, they offer good, defensive exposure to what should be a steady, but growing market. Back to buy."
Nice review on Investors' Champion, highlighting the "impressive 29% return on equity" and "glorious" cash flows!
Https://www.investorschampion.com/channel/blog/testing-the-stress-levels
"Renew – excellence, as always
Renew (AIM: RNWH), the leading Engineering Services Group supporting the maintenance and renewal of critical UK infrastructure, announced excellent full year results and news of an acquisition.
Renew's activities are focused into two business streams: Engineering Services, which accounts for over 95 per cent of the Group's adjusted operating profit, focuses on the key markets of Rail, Infrastructure, Energy (including Nuclear) and Environmental which are largely governed by regulation and benefit from non-discretionary spend with long-term visibility of committed funding.
Specialist Building focuses on the High Quality Residential, Landmark and Science markets in London and the Home Counties.
For the year ending 30 September 2022 revenue rose 7.3% to a record £849m while operating profit was up 21.7% to £50.0m.
Network Rail is a significant strategic customer for the Group and during the period Renew became the third largest provider of engineering services to Network Rail nationally.
It entered the Highways market via its acquisition of Carnell in January 2020. The UK Government has committed to an unprecedented level of spending on England's strategic road network as part of its second Road Investment Strategy ("RIS2").
The order book of £775m offers decent visibility.
Post tax profit of £40m for the year represents an impressive 29% return on equity. Renew generates attractive returns from a balance sheet of negative tangible assets. That could be worrying for some, but it certainly hasn’t disappointed over the years and unlike Victoria covered above, free cash flow was a glorious £54m with Renew closing the year with net cash of £20m.
Renew also announced the acquisition of Enisca Group for £15.6m. Enisca is an engineering business operating in the water and environmental sector with headquarters in Cookstown, Northern Ireland."
Well, just looking at Enisca, £2m net profit/ 79m shares = + 2.5p for EPS, which would account for nearly half of Shore Capital's predicted increase. As you say, that looks conservative.
Cheers GuitarSolo, appreciated!
Shore Capital's new note implies 65p EPS for their "upgraded FY23F EPS forecast", i.e around 10% growth over the 59.5p EPS to last September.
Given that RNWH have already added around almost £2m operating profit for a full year of the new acquisition, this seems very conservative to me.
There are many potentially huge growth drivers which are now coming to fruition in addition to RNWH's secure and continuing defensive operations:
- rail electrification
- 5G implementation
- electric vehicle charging
- AMP7 regulatory spend ramp-up in Water
- Road Investment Strategy
- nuclear decommissioning and decontamination
- MOU in place to support the manufacture of Rolls Royce's Small Modular Reactor
- £5.2billion government spending to improve flood defence infrastructure
- new phase of works at Palace of Westminster
I'm a holder here - agree it continues to perform and acquire quality and profitable businesses for further growth.
The weird thing is the muted reaction to the RNSs. For some reason this company is completely off the radar for most investors and daily volumes are small. Price seems to be controlled by a few algo buys / sells each day for some reason.
Clearly needs wider media coverage and some broker upgrades.
Gotta love RNWH! Every time they deliver. It's not that it is spectacular, it is just so consistent. The predictability of the company is a blessing too...... You just know they are going to pay off the debt from the last acquistion and then be in a position to buy another company. The fact they're buying Enisca for cash (and they'll still be net cash after it by the looks of it), means they have the balance sheet clear to make another purchase with debt (although that may not be as appealing now as a year ago) if the opportunity arises.
Thanks Rivaldo for all the posts!
Guitarsolo
Shore Capital this morning say Buy with a 930p target.
They note that:
"Renew has consistently had a very high level of visibility with c.70% of current year forecast sales usually in the order book. This has helped the group meet or beat consensus profit forecasts in every year since the group came into its current form in 2006."
They conclude:
"Valuation and recommendation
We believe Renew presents an attractive opportunity for investors to benefit from the UK government’s commitment to spend £600bn on infrastructure from 2022 to 2027. Given the nature of Renew’s variable, cost-plus contracts, we believe it is very well placed to pass on inflationary pressures to customers. We also believe it is protected against economic downturns given that its revenue is driven by the public sector.
We continue to believe Renew has a lower risk profile than the market perceives, possibly due to associations with peers servicing much larger fixed contracts. Renew’s ability to control costs and resilience during the pandemic was much greater than the majority of Industrials and worthy of a greater re-rating, in our view.
We maintain our BUY recommendation and 930p DCF-based fair value (40% upside). The shares have fallen 22% YTD after a very strong two-year run, presenting an attractive entry point. As of yesterday's closing price, the shares trade on 10x our upgraded FY23F EPS forecast and 6x on an EV/EBITDA basis."
Terrific results - 59.5p EPS is well ahead of Numis' forecasts (56.6p). I'd have thought upgrades would be necessary for this year.
Particularly as there's also news of an "immediately earnings-enhancing" and material acquisition in the water sector for £15.6m cash. With £2.1m operating profit forecast this seems good value in one of RNWH's core sectors. And it's already well known to RNWH, so very little integration risk.
All divisions are trading well and the outlook statement is rosy. The continued Allenbuild provisions are the only relatively small fly in the ointment, but the ongoing business looks in great shape.
Above all, there are many £billions of pledged government and industry spending in all of RNWH's divisions - water, nuclear, rail, telecoms etc etc. And RNWH looks more and more like a major and trusted partner to build out the required infrastructure.
If forecasts this year are for say 65p-70p EPS, then the share price should really be anywhere from 850p-900p at least given the rate of growth and the prospects.
The question is Rivaldo, how good? Perhaps EPS above 55p?
I'll be interested to see what the net debt figure is, as clearing the cost of the last acquisition is often the catalyst to another one. I very much approve of this approach.
I also expect a penny or so uplift in the dividend (just over 5%).
Guitarsolo
We already know the numbers - ahead of consensus - and outlook will be good.
Encouraging read-across for RNWH from Severfield's interims this morning as regards the increased budgets for rail electrification, roads, power networks etc:
"As a key component of economic growth, the construction industry will be central to a sustainable economic recovery. New, low carbon infrastructure (including HS2, wind power, new nuclear, rail electrification, energy efficient buildings) will play a leading role in stimulating sustainable growth. The UK government's National Infrastructure Strategy ('NIS') sets out its plans to transform infrastructure to drive economic recovery, levelling up and meeting the UK's net zero emissions target by 2050. The funding of £650 billion for developments in roads, railways, power networks and other UK infrastructure projects, represents an increase of around £100 billion from the previous plan. Included within the NIS are increased budgets for some of the Group's key customers such as Network Rail, including a significant amount of rail electrification work and Highways England, including the second Road Investment Strategy."
I'm excited to see what they say on the 29th. Fingers crossed the numbers are as good as I expect them to be, in which case a re-rate is definitely due.
Https://citywire.com/funds-insider/news/expert-view-just-eat-burberry-halma-renew-and-ceres/a2402912#i=5
"Peel Hunt: Renew Holdings underappreciated
Engineering group Renew Holdings (RNWH) is seeing continued momentum but it isn’t appreciated by investors, says Peel Hunt.
Analyst Andrew Nussey retained his ‘buy’ recommendation and target price of 900p on the stock, which added 1% last week to close Friday at 636.5p having fallen 22% this yeare.
He said the October update from the group triggered a 3% full-year 2022 earnings per share upgrade and management ‘continues to enhance earnings quality and quantity’.
‘We anticipate another confident outlook statement given the visibility and growth opportunities,’ said Nussey.
He said the shares trade on 11.5 times forecast earnings for next year 2023 with anticipated cash in 2024 that is equivalent to 11% of its market value.
‘We continue to believe that the organic cash compounding and M&A growth characteristics, supported by a strong management team, are not fully appreciated by investors. The forthcoming results could be an important catalyst,’ he said."
Amidst all the tax rises/allowance reductions etc yesterday, the few major spending commitments were good news for RNWH.
Jeremy Hunt committed to £600 billion of infrastructure investment over the next five years. For example, RNWH are already involved in HS2, Shepley have highlighted Sizewell C a number of times, Clarke Telecom will welcome the gigabit-broadband roll-out, etc etc:
Https://www.agg-net.com/news/cea-responds-to-chancellor-s-autumn-statement
"We welcome the Government’s decision to proceed with a new nuclear power plant at Sizewell C, which will help to provide reliable low-carbon power."
She continued: ‘Mr Hunt confirmed that as part of the Government’s commitment to growth and infrastructure, it will deliver the core Northern Powerhouse Rail, HS2 to Manchester, East-West rail, the new hospitals’ programme, and gigabit-broadband roll-out. These will be funded with morw than £600 billion of investment in the next five years, which Mr Hunt said: ‘will connect our country and grow our economy’. The CEA welcomes the Chancellor’s continuing commitment to major investment in infrastructure."
For the record, the prelims for the "ahead of market consensus" results will be on November 29th:
Https://uk.advfn.com/stock-market/london/renew-RNWH/share-news/Renew-Holdings-PLC-Notice-of-Results/89514128
This news is rather encouraging from Walter Lilly and hasn't been posted before (apologies, you'll have to click the link as the page doesn't allow copying and pasting).
Given the £600m investment planned by DEFRA over the next four years, perhaps this helps explain why RNWH are holding it rather than disposing as Walter Lilly sits outside of their core businesses:
Https://www.walterlilly.co.uk/successful-framework-relationship-continues-with-walter-lilly-and-defra/
Lewis Civil Engineering have been appointed to deliever a £1.4m flood alleviation scheme in Wales starting in early 2023:
Https://www.wales247.co.uk/major-funding-secured-for-the-glenboi-road-flood-alleviation-scheme
Numis have issued an update note - they say Buy with a 900p target.
They've raised their forecast for the year just ended by 4%, and now see 56.6p historic EPS. So not far off a single-digit historic P/E.
There's also a 16.8p dividend.
They've left their forecasts for this year unchanged at present - I assume these will be adjusted after the full prelims.
Finally, they see a £2.3m year end cash pile rising to £20.4m next year, though this is slightly ambiguous as they also say:
"Note that we leave Sep-23E net cash unchanged at c.£35m due to assumed phasing of capex. We think the Group's strong balance sheet offers scope for further accretive and capability-enhancing M&A, consistent with the strategy."
Today's year end update confirms RNWH have traded slightly ahead of expectations - and RNWH now have a £9m cash pile to spend, also ahead of expectations.
The order book and outlook are "strong" and core markets are trading well.
The £54m+ operating profit should therefore equate to around 55p historic EPS, so the current year P/E is barely in double figures, especially stripping out the cash pile - which could be used for quite a meaty acquisition.
Excellent:
Https://uk.advfn.com/stock-market/london/renew-RNWH/share-news/Renew-Holdings-PLC-Year-End-Trading-Update/89194693
Good to see a third director buying shares in the last couple of weeks or so - at £20,000's worth I assume she's filled her ISA up with RNWH shares.
And this on the day before the year end! Has to be a pretty useful indicator of current trading:
Https://www.investegate.co.uk/renew-holdings-plc--rnwh-/rns/director-pdmr-shareholding/202209291624412239B/