Renew Holdings Share Price (RNWH)

"Renew’s Water and Environmental divisions are doing really well. Like nuclear, the water side is underpinned by regulatory guidance for expenditure and significant investment is needed to upgrade existing ageing infrastructure, and the industry’s £22.1 billion AMP7 scheme - the asset management plan period put forward by the regulator Ofwat, which runs between 2020 and 2025 - is already seeing the water companies dishing out new contracts. The key customer is Welsh Water, for which it works under frameworks for sewer maintenance, trunk mains cleansing as well as water distribution.

The last element in the mix is Environmental, which is involved in piling works, flood defences and so on; a sector with £1bn a year committed for the next 50 years.

The rating doesn’t look demanding especially as net debt is down to £17.2m and by next year Renew is expected to move back to net cash. On a prospective PE of just 10.8x, with excellent prospects of further growth, the shares look attractive."

"Last year the company completed the £80m acquisition of QTS and this alongside an earlier acquisition of Amco means rail is now Renew’s biggest chunk at c.50% of sales with Scott noting that Renew is now a top six company in renewals and maintenance. Working across five regions and all 13 routes, QTS carries out civil works, geotechnical and earthworks services and fencing whereas Amco is generally offtrack civil (tunnel repair), mechanical and electrical work.

As Scott notes, the main customer is Network Rail, the owner and operator of most of the rail infrastructure, and it plans its work across control periods of 5-year timespans. The current period ended in March and things had been expected to cool down ahead of Control Period 6 starting but when it got to December, the phone didn’t stop ringing. And last year there hadn’t been a freak event like when a bridge collapsed into the sea at Dawlish (near Exeter) taking a significant stretch of the railway with it; instead it was bread and butter type jobs. Now CP6 has resulted in a 17% increase in spending to £46bn over the previous programme, within which renewals and maintenance is earmarked to see the greatest growth.
Still within the infrastructure division, telecoms has also seen its strongest period yet, says Scott, with 4G and 5G continuing to present an opportunity under long term programmes. This division is all about the design, building and decommissioning of masts for the likes of Telefonica and other mobile network operators.

In the Energy division, the original nuclear bit is going really well and Scott makes no secret of wanting to grow the company’s nuclear capability. Shepley, which has operated at the Sellafield nuclear site in Cumbria for almost 70 years, is involved in decommissioning nuclear assets. The Nuclear Decommissioning Authority has confirmed £3bn annual expenditure; most of the reactors in the UK have now lasted out their lifetime and are being dismantled and decommissioned but this dismantling process can take a number of years with a site often having to be run in safe storage mode for 40-50 years while the building remains sealed and monitored by decommissioning experts. Shepley is all about building the long term storage solutions to manage the decommissioning process before things can be dismantled. Scott says the division is also cleaning up and dismantling Dounreay as well as some old power stations."

With the July issue of SCSW now out, I thought it might be time to give the conclusion of the tip for RNWH in the June issue an airing:
Https://www.scsw.co.uk/article.php?id=8080

""Renew - Shares break into new territory
430p Epic code: RNWH

Renew (RNWH; 430p) is an old friend to SCSW, a company I have followed since 2006. Back then the share price was 49p. Even as recently as December 2011, the shares could have been bought at 64.5p - the business was still being valued as a construction company rather than the higher rated support services business that it is.

Of course part of the problem when a business has gone through the wars and traumatised investors is that investors are slow to forgive and forget. Back in 2006, it had just gone through a period of crisis. Known as YJ Lovell, it had been established over 200 years earlier and ended up as a hodge podge owning a variety of construction and land development businesses. Several outstanding construction difficulties relating to fixed price contracts emerged and derailed it and the best part of the group, a social housebuilder, was sold. After a tidying up period by the previous chief executive, Brian May, who grew the engineering services side through acquisitions for the next 10 years, the reins were handed to Paul Scott who had earlier sold his nuclear decommissioning business, Shepley, to the group.
Renew has since gone from strength to strength and whilst the share price hit a new high last month, they look underrated. Numis is forecasting eps of 39.9p for the full year to end September with 42p next year and I suspect before long the earnings per share will exceed the 49p share price at which I first recommended them.

There is still a legacy building business involved in things like complex basement and overcrofts at top end residential properties in Mayfair and Kensington but this division has been downsized and in the latest first half recorded a profit of just £0.3m on sales of £19m. One day there will be an ultimate bit of refocussing whereby the division will likely disappear. Engineering services, meanwhile, has grown like topsy with sales overall up by 25% to £282m and operating profit up by 48% to £19.1m in the period. Margins within specialist engineering hit an all time record 6.8%, up 1.1% year-on-year.

Growth, both of sales and profits, comes from engineering services across areas that benefit from long-term spending programmes, very roughly split 60% Infrastructure (rail & telecoms), 20% Energy (nuclear) and 20% Environmental (water & land remediation). Most divisions work with long-term framework contracts, which offer greater security and therefore significantly lower risk, although the overall mix can change slightly from year to year depending on growth of the individual parts."

Encouraging that an NED has seen fit to make his maiden purchase of shares in the company at 414p:

Https://www.investegate.co.uk/Index.aspx?searchtype=3&words=rnwh

RNWH's AMCO have been named today as a winner in the second £215m tier of signalling framework contracts from Network Rail.

Since fewer contractors have been named, in a deliberate move, I'd assume this will mean an increased slice of the pie for those involved.

The third framework involves "major" signalling works, so I assume this is much larger, and will be disclosed in January:

Https://www.railway-technology.com/news/network-rail-uk-rail-signalling-contracts/

"26 June 2019
Network Rail awards signalling framework contracts worth £215m"

"The awarded contracts represent 17 route-based lots. It includes two framework contractors for seven of these routes and three framework contractors for the Western route.

The winning contractors include Balfour Beatty, Volker Rail, Amco, Amaro Signalling, Amey, Linbrooke and OSL."