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It's worth noting that RNWH have outperformed forecasts by some margin. For example, for the last year to 30/9/22 RNWH achieved 59.3p EPS, compared to the forecast 45.4p EPS per a broker note back in Dec'20 and then 52.3p EPS forecast in a Nov'21 note.
The current broker forecasts appear conservative to me too, particularly as more acquisitions are likely, but also because trading appears strong. I expect upgrades once again.
There was further support for this from VP.'s trading statement today. They stated that their UK division "has seen the benefit of a stronger civil engineering (i.e highways) and infrastructure (i.e water, rail & energy) market". All of which are key sector for RNWH.
Shore Capital actually have a 950p price target here :o)) I failed to spot the concluding paragraph on page two of their report......
"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. We maintain our BUY recommendation and 950p DCF-based fair value (40% upside). As of yesterday's closing price, the shares trade on 11x our conservative FY23F EPS forecast and 7x on an EV/EBITDA basis. We consider this valuation to be anomalously cheap, given the company’s consistent c.30% ROIC, 18% adjusted EPS CAGR since 2011 and current net cash position."
IMO it'll only take a small uptick in investor sentiment, or an institutional buyer, to re-rate the share price to nearer those 900p broker targets. Perhaps the upcoming interims will start the process.
Shore Capital never have price targets, but per their new research update they now see scope for upgrades from their current 59.3p EPS and £32.9m cash pile forecasts:
"We believe EPS could be ahead of our current number and consensus by a high single-digit percentage"
More extracts:
"Renew^ (RNWH, Buy at 676p)
Order book indicates risk to the upside"
"Forecasts
We maintain our revenue forecast of £870m for FY23F (2.5% growth). We noted following the AGM update on 1 February 2023 that this appeared to be increasingly conservative following 16% order book growth in Q1 to £861m. We continue to believe this given that the order book is set to be reported c.12% ahead of 31 March 2022. We anticipate that the adjusted operating margin will remain at the elevated level of c.6.9% with very low downside risk, given the cost-plus nature of the group’s contracts. Given the increased tax rate, we currently forecast minimal growth in adjusted EPS, but see scope for revenue upgrades.
We believe EPS could be ahead of our current number and consensus by a high single-digit percentage. 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."
"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."
Numis say Buy and also have a 900p target after yesterday's update:
"RENEW (BUY 900p). H1 trading update.
Renew has issued a brief, reassuring trading update indicating that trading in 1H23 was in line with management expectations. We therefore make no forecast changes. The statement notes that the order book position, underpinned by long term framework positions, is expected to be similar to that reported in the AGM update (Engineering Services order book £758m at Dec-22 versus £717m at Sep-22). The business continues to successfully manage inflationary pressures and supply chain challenges. It also notes that Enisca, acquired in Nov-22 is integrating well into the Group and is trading in line with expectations.
The shares trade on a +12m PE of c.11.5x and EqFCF yield of c.7.5%. 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."
Peel Hunt retain their 900p target and say Buy:
Https://citywire.com/funds-insider/news/expert-view-cineworld-renew-haleon-admiral-travis-perkins/a2413548
"Peel Hunt: Renew a ‘key buy’
Engineering group Renew (RNWH) is not only a cash compounder, but it has ‘meaningful’ opportunities to consolidate its fragmented market, says Peel Hunt.
Analyst Andrew Nussey retained his ‘buy’ recommendation and target price of 900p on the stock, which softened 0.5%, or 3.7p, to 672.4p yesterday.
First-half 2023 results from the group showed ‘positive operational and strategic momentum’ and there was ‘no surprise within the commentary’, said Nussey, who also noted the ‘good cash generation’.
A confident outlook was ‘underpinned by proven, specialist capabilities, well bid order book, and leadership in structurally attractive markets.’
‘Renew continues to demonstrate highly attractive cash compounding metrics afforded by its focus on essential engineering services to UK infrastructure,’ said Nussey.
‘Moreover, there are meaningful opportunities to consolidate highly fragmented markets. The shares remain a key buy on 11.2 times September 2023 earnings per share given the growth outlook and balance sheet strength.’"
As positive as one could hope for at H1's close and in the current economic environment in meeting expectations once again.
RNWH's P/E is barely above 11 despite the huge growth likely in so many of its sectors, the confidence in the outlook and strong order book shown today and despite RNWH's impeccable record over so many recent years in either beating or meeting expectations.
And as rimau says there's a definite possibility of another acquisition given the rising cash pile.
With that healthy forward outlook "underpinned by long-term framework positions" it's about time RNWH were given credit for their secure position within UK infrastructure and their consistent long-term performance, and re-rated accordingly:
https://uk.advfn.com/stock-market/london/renew-RNWH/share-news/Renew-Holdings-PLC-H1-Trading-Update-Notice-of-R/90666741
RNWH's J Browne are one of the winners of this new 5 year wastewater framework award:
Https://www.constructionenquirer.com/2023/03/17/winners-named-for-139m-wastewater-framework/
"Thames Water has appointed six contractors on the first lot of winners made public under its Waste Network Services framework.
The £139m Lot 5 deal covers high value proactive and reactive emergency repairs on both the gravity and pressurised wastewater network across the Thames Water Utilities operations area.
The six winners are Barhale, Cappagh Contractors, Clancy Docwra, J Browne, McAllister Bros and Morrison Utility Services."
New support for RNWH from Peel Hunt, who in analysing Hill & Smith's results yesterday see RNWH as a much better bet:
Https://citywire.com/funds-insider/news/expert-view-hotel-chocolat-admiral-hill-and-smith-cls-and-breedon/a2411226
‘The (Hill & Smith) shares trade on 16 times our upgraded full-year 2023 earnings per share forecasts… and now appear to be fairly valued. We downgrade our recommendation… following a strong recent share price performance, and see more upside for Renew, which is considerably cheaper despite generating higher returns on invested capital, higher historic earnings growth, and having a lower risk profile.’
Good news from Friday - the first ever framework wins with Welsh Water for Enisca through to 2027 at minimum:
Https://www.enisca.com/news/view/116/enisca-awarded-major-mechanical-and-electrical-frameworks
"Enisca awarded Major Mechanical & Electrical Frameworks
3 Mar 2023
Enisca are delighted to have been successfully appointed to Dwr Cymru Welsh Water (DCWW) Major Mechanical and Major Electrical Frameworks.
These frameworks will support delivery of works and services from feasibility, through Early Contractor Involvement, to design, construction, commissioning, and handover throughout the DCWW operating region. The contract will run until 2027 with an option to extend for a further 3 years.
Conor King, Managing Director said “We are delighted to have secured these frameworks, our first with Dwr Cymru Welsh Water. We look forward to working closely with the Welsh Water team, delivering the programme of works and customer environmental and wider sustainability outcomes in our cost efficient and collaborative manner.”
Dwr Cymru Welsh Water provides water and sewerage services to over 3 million people living and working in Wales as well as some adjoining parts of England. DCWW serves 1.4 million households and businesses, operating 66 impounding reservoirs, 63 water treatment works and supplies an average 828 million litres of water every day through a network of 26,500km of water mains. DCWW also collects wastewater (and surface drainage) through a network of more than 30,000km of sewers, incorporating 1,912 sewage-pumping stations and 3,200 combined sewer overflows. It is treated at 838 wastewater treatment works."
Per an article in yesterday's Times, Canaccord Genuity have analysed 17,000 stocks to identify companies at "depressed valuations" yet which are "high quality" assets without debt, a record of success etc, and would therefore be the top takeover targets for private equity.
The Times published a table of the top twenty biggest target companies (the table isn't available online) - RNWH were one of the top 20:
Https://www.thetimes.co.uk/article/pets-at-home-can-be-pandemic-winner-that-keeps-on-giving-cz8crl76v
Nice perspective on AmcoGifen's new win on Network Rail's £2 billion contract framework setting out the security of revenues and timetable that this gives both the winners and Network Rail:
Https://www.railmagazine.com/news/network/2023/01/25/nr-awards-infrastructure-contracts-for-cp7-suppliers
"NR awards infrastructure contracts for CP7 suppliers
27/01/2023
Five major infrastructure contractors and suppliers are celebrating £2 billion worth of contracts from Network Rail that could keep them in work across Wales and the West of England until the end of the decade.
AmcoGiffen, Octavius, BAM Nuttall, Morgan Sindall and Taylor Woodrow have all been giv-en what they have sought for many years - a pipeline of work that will enable them to plan their resources better, work more closely with their own suppliers, and hopefully significantly re-duce their costs.
Numerous hours have been spent at rail conferences and meetings lobbying the Department for Transport and Network Rail to come up with this solution to stop-go rail investment.
NR has now announced deals for its buildings, civil engineering, electrification and plant equipment between the years 2024-29, under what is known as Control Period 7 (CP7).
The Government’s total budget for operating, maintenance and renewals is £44 billion, com-pared with £47bn for the previous five-year period.
Network Rail says that packaging the work into bundles should save both time and costs, through best use of resources, consistency, and better co-ordination."
Stockopedia recently ran a screening for Warren Buffett stocks of all those with a minimum market cap of £50m, using all his criteria of ROCE, EPS, book value per share, gearing etc etc.
RNWH were the 7th highest rated stock of all of them, with a Stock Rank of 94:
Https://beforeitsnews.com/financial-markets/2023/02/screening-for-warren-buffett-stocks-the-ultimate-strategy-4571499.html
Shore Capital have a 950p target and say Buy, with upgrades likely - RNWH are "anomalously cheap":
Extracts:
"We believe EPS could be ahead of our current number and consensus by a high single-digit percentage.
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 thegroup meet or beat consensus profit forecasts in every year since the group came into its current form in 2006."
"We anticipate that the adjusted operating margin will remain at the elevated level of c.6.9% with very low downside risk, given the cost-plus nature of the group’s contracts."
"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 950p DCF-based fair value (30% upside). As of yesterday's closing price, the shares trade on 12.3x our conservative FY23F EPS forecast and 7.6x on an EV/EBITDA basis. We consider this valuation to be anomalously cheap, given the company’s consistent c.30% ROIC, 18% adjusted EPS CAGR since 2011 and current net cash position."
Numis reiterate Buy with a 900p target after yesterday's AGM update, and Shore Capital also say Buy:
Https://www.sharecast.com/equity/Renew_Holdings/broker-views
Peel Hunt have reiterated their Buy with a 900p target:
Https://citywire.com/funds-insider/news/expert-view-virgin-money-vodafone-games-workshop-renew-strix/a2408163
"Peel Hunt: Renew is a key engineering pick
Engineering group Renew (RNWH) is benefiting from multiple growth opportunities and compounding cashflows, says Peel Hunt.
Analyst Andrew Nussey retained his ‘buy’ recommendation and target price of 900p on the stock, which slipped 0.5%, or 3p, to 729p yesterday.
A short update from the group for its annual general meeting confirmed trading was in line and the order book was growing.
Nussey said the outlook for the group was positive ‘given the structural growth drivers, specialist capabilities, order book visibility, and proven ability to manage inflation and skills pressures’.
He said he ‘confidently’ retained his recently increased 2023 pre-tax profits estimate of £61.5m.
‘The September 2023 estimated price/earnings ratio of 12.1 times fails to reflect the quality of the compounding cashflows as well as the multiple growth opportunities afforded by the sector-leading balance sheet and management team,’ said Nussey.
‘Renew remains a key sector pick.’"
I'd also comment that the Puma fund manager's commentary I posted earlier is understated given RNWH's high profile in fast-growth infrastructure areas like nuclear, water management/flooding, 5G, highways, EV charging, rail electrification etc.
RNWH are the second largest holding in Puma's AIM Inhertitance Tax Service Fund, at 6.9% of the portfolio.
Their Q4'22 factsheet just issued has a spotlight feature on RNWH. The conclusion (see below) is interesting.
The Fund Manager above states that a P/E of 16 is too low for RNWH. Since at 740p RNWH are actually on a historic P/E of only 12.7 based on 58.3p EPS to last September, that would equate to a minimum share price target of around 950p:
Https://www.pumainvestments.co.uk/img/repeater/d40c5e52ee.pdf
"Valuation
Renew has a high return on capital and stable profit margins, however the lower growth nature of its industry and its lower profit margins, warrant a lower rating than businesses with similar returns on capital. Nevertheless, a P/E multiple of 16 and a free cash flow yield of 8% appear too low for a business that has had an earnings-per-share CAGR of 18%
over the past 11 years."
An encouraging AGM update - can't ask for more than that at this stage. Everything's trading well and with "momentum", giving confidence ahead.
The key takeaway is that the order book is absolutely storming ahead - it's now £861m, compared to £775m at 30th September. A rise of 11% in just four months is extremely impressive:
Https://uk.advfn.com/stock-market/london/renew-RNWH/share-news/Renew-Holdings-PLC-AGM-Statement/90106599
The AGM update is only two days away. I'm looking forward to it given the outlook from the prelims:
"Pleasingly, our positive trading momentum has continued into the new financial year and we enter 2023 with a strong order book and believe the structural growth drivers in our end markets, underpinned by committed regulatory spend, continue to provide the Group with significant opportunities."
Excellent news, cheers - this is a "bumper" £2 billion framework securing income through 2024-29 with an option for a further three years to 2032. RNWH are one of only five contractors on the framework, but have won substantial work in winning two of the six contracts - you'd have thought this might be worth an RNSNON at the very least.
Great to see RNWH winning the electrification contract, proving that the acquisition of Giffen was a smart move and hopefully setting AmcoGiffen up for many more electrification contract wins.
I also note that these "will be followed by similar contracts for signalling later in 2023".
RNWH subsidiary AmcoGiffen are will share in the £2bn programme of works in Wales and Western region over the next 8 years. AmcoGiffen has two contracts: Wales and western electrification and plant, and Wales and Borders structures. Another useful contract win.
https://www.theconstructionindex.co.uk/news/view/five-share-2bn-railways-framework
"Floods and travel chaos across the UK", particularly across the rail networks, should be good news for RNWH if not so good for everyone else:
Https://www.bbc.co.uk/news/uk-64253800
And a news item from RNWH - good to see AmcoGiffen and Carnell working successfully together on their debut major highways contract:
Https://www.amcogiffen.co.uk/news/highways-news-from-agc-m69-project-success
"10/01/2023
Our highways joint venture AGC has successfully completed its first major barrier scheme on National Highways' vehicle restraint system contract on its Scheme Delivery Framework (SDF).
We used a find-and-fix method on a long stretch of the M69 identifying safety critical defects and their swift remediation. We were unable to predict what would be required from one day to the next, so it was essential for us to work together with our client National Highways, partner Chevron Traffic Management and our supply chain. Working in collaboration combined with our adaptive management and delivery capabilities led to the contract’s success.
Over the course of the scheme, we surveyed a total of 30,800m barrier, and 5,950m beam and removed and replaced 4,500 barrier posts.
The original scope was for 15 kilometres of the M69 between junctions 1 and 3 in the East Midlands. But, as we progressed and with fewer than anticipated defects, the scope was extended to include 9 kilometres of the M6 to junction 1 heading into the West Midlands, completed for the same budget.
etc"
Indeed, the future looks bright for RNWH even if the rest of the UK economy looks a bit grim. Infrastructure spending tends to be treated differently to current account spending and is looked upon much more favourably by financial markets and lenders to UK plc. Indeed, if Truss/Kwarteng had announced they were spending the same amount but on infrastructure improvements rather then tax giveaways, they probably would have got away with it! RNWH are clearly in sectors where money will be spent even during recession, so should be far more resilient than many other stocks I hold.
GLA.
Hi Ricardo,
Thanks for posting that. As you say, the planned infrastructure/ maintenance spending is huge. Your list is £307 billion and doesn't include all of it, I'm sure!
I do worry though whether this is truly affordable by UK Plc. We saw what happened after the Truss/Kwarteng budget! That told me that the markets don't think the UK has that much room to borrow more (for lots of reasons). Even when money is budgeted, we all know it can be delayed or changed. Many of the pledges of investment were made in the ULIR environment and might need to be revisited as things change.
Of course, even a fraction of it would be nice for RNWH. Furthermore, I feel RNWH is more at the "can't do without" end of the spectrum for these projects. So if corners are cut, it might be elsewhere.
Overall, I remain bullish about RNWH's prospects and the way the company is run.
Guitarsolo
RNWH's Annual Report is well worth a read for the Strategic Report at the front which isn't on RNS. The impressive opportunities for RNWH are spelt out in detail:
- £51 billion spend in Water via AMP7 into 2025. Now we're in the latter part of the cycle, regulatory expenditure should accelerate nicely
- £30 billion spend in Wireless telecoms upgrades for 5G etc
- £53 billion spend in Rail via CP6 into 2024, including rail electrification and increased focus on renewal and maintenance, which are RNWH's strengths
- £124 billion Nuclear decommissioning spend, with 75% allocated to Sellafield where RNWH are strongly represented
- £24 billion spend on Roads via RIS2
- almost £1 billion on Electric vehicle charging
- £5.2 billion on Flood and coastal protection through the next six years
- £20 billion on UK Electricity/Power networks for transition to renewables
- 40 UK airports requiring increased renewal and maintenance expenditure (new area for RNWH?)
RNWH are one of Andrew Hore of i.i.i's AIM share tips for 2023, just published this morning....
Https://www.ii.co.uk/analysis-commentary/five-aim-share-tips-2023-ii526360
"Renew Holdings RNWH generates most of its revenues from providing maintenance and other services to utilities and infrastructure sectors. This is a cash-generative business and last year’s trading was ahead of expectations.
Renew provides engineering services for markets including energy, nuclear, water, environmental, telecoms, rail, road and other infrastructure. Much of the business is based on long-term framework contracts and ongoing maintenance spending, rather than one-off capital projects. The company still has a construction business, which is involved in major structural engineering works for upmarket residential properties in London and the Home Counties, but it is a reducing percentage of the business – less than 3% of operating profit.
The order book is worth £775 million, including £717 million for the engineering services division. The long-term contracts make it easier to manage rising costs and margins are improving.
Organic growth has been supplemented by acquisitions. There was net cash of £20.2 million at the end of September 2022 and £15.6 million of that cash is being spent on Enisca, which provides services in the water sector. This should be immediately earnings enhancing.
This deal will help pre-tax profit to improve from £58.2 million to £61.5 million in the year to September 2022. Even after paying for Enisca, net cash could be £29 million by September 2022. There could be further acquisitions, though.
The shares are trading on 11 times 2022-23 prospective earnings. The forecast yield is 2.6%. The rating is modest for such a cash generative business with limited downside. Buy."