Renew Holdings Share Price (RNWH)

The IC says Buy:

Https://www.investorschronicle.co.uk/news/2024/05/14/the-uk-s-need-for-infrastructure-repair-is-a-boon-for-renew/

"The UK's need for infrastructure repair is a boon for Renew

Acquisitions have helped the company widen its reach ahead of new five-year framework deals

The UK’s creaking infrastructure may be a source of complaints among users of the country’s roads, rail and rivers but it is providing a steady stream of work for Renew Holdings (RNWH).

The Leeds-based contracting group reported a 13 per cent increase in operating profit for the six months to 31 March and has continued to convert most of this into cash. It finished the period with net cash of £42.5mn (excluding leases), up from £35.6mn at the end of September and £17mn a year ago.

The company has been something of a cash compounder in recent years and it has funnelled proceeds back into the business by making bolt-on acquisitions that have added either new capabilities or expanded its geographical reach.

Chief executive Paul Scott flagged Rail Electrification – acquired for £5.3mn in 2021 – as a business that, working alongside two existing rail businesses, has placed it in a much stronger position to win work on the industry’s latest five-year framework agreements. New budgets are also being set for the next five-year programmes to be carried out across the road and water networks, with spending on the latter likely to increase by 87 per cent based on current business plans.

Renew’s focus on maintenance work means it’s less likely to be affected if whichever party wins this year’s election decides to take an axe to planned capex schemes. Although its shares look quite pricey compared with contracting peers – they trade at 15 times earnings, having risen by 40 per cent over the past 12 months – its strong track record and resilient end markets suggest they remain good value. Buy."

Nice interview with the CEO at the end of this summary of the interim results, driving home the essential point that RNWH's revenues are secure and non-discretionary.

Looks like there'll be more acquisitions, likely in electricity transmission and distribution and possibly renewables:

Https://www.thebusinessdesk.com/yorkshire/news/2124054-bright-future-forecast-for-engineering-group-as-profits-and-revenues-rise

"Bright future forecast for engineering group as profits and revenues rise"

"“But I think you’ve got to drill into the detail, and understand that we have a differentiated offering to others who operate in our sector, in terms of the kind of work that we seek out. We seeking out work that is non discretionary in nature. They are essential – essential UK infrastructure, asset improvement and renewal and maintenance is what we choose to choose to do.”

Renew’s model shielded it somewhat from inflationary pressures, Scott said. Its projects were typically long term and allowed for increasing costs, and it employed people directly.

“That makes us very different, less exposed, and more commercially stable, which is why the profitability is more reliable than others operating in our sectors,” Scott said. Cost inflation did still have an impact, and Renew was consciously becoming more efficient and productive through the use of automation and innovation.

While opportunities in road and rail remained strong, Scott saw further expansion by moving into other sectors. The firm had struggled to move organically into electricity transmission and distribution, for instance. “We’re looking through our M&A activity to make some progress in that particular market sector. It has all of the ingredients that have created the success of Renew elsewhere. It’s a regulated market, you have to be skilled to operate in it, direct delivery works well in that segment, it’s very reliable, and it’s under-invested.

“And we have to do catch-up in that market if we are to get anywhere near Net Zero 2050 and our sustainability agenda. That network has to be reconfigured. So our M&A activity is looking closely at that sector and possibly renewable energy.”

It's worth looking at the H1/H2 earnings splits.

RNWH made 31.3p EPS in the last H1, up 14% year on year. Last year they made 27.4p EPS in H1 and 36.1p EPS in H2.

Let's only assume they better last year's H2 by 10%. This would imply 39.71p H2 EPS, which added to this year's H1 gives just over 70p EPS, which would smash expectations.

Yet another analyst raise their target price per today's news wires:

"Deutsche Bank raises Renew Holdings target to 1,180 (1,150) pence - 'buy'

More re Berenberg's increased 1200p target price:

Https://citywire.com/investment-trust-insider/news/expert-view-currys-greggs-renewi-headlam-and-bioventix/a2442398?page=3

"‘Buy’ high quality engineer Renew, says Berenberg

Renew (RNWH), the AIM-listed engineering services group, can continue the momentum it has built in the past six months given its ‘high-quality proposition’, says Berenberg.

Analyst James Bayliss maintained a ‘buy’ recommendation but lifted his target price from £10 to £12 as the shares gained 2.4%, or 24p, to £10.26, valuing the company at £812m.

The six months to 31 March ‘reflected another record performance’, with group revenue up 17.2% at £552.8m and operating profit also 17% higher at £33.1m, ‘both driven by strong demand and performance across all end-markets and the group’s high-quality, low-risk business model’.

Bayliss said net cash of £42.5m leaves the group ‘well placed for further organic and inorganic investment, while strong momentum in the first half has carried through to the start of the second half’.

Management is continuing to tender for and win new contracts and so Bayliss ‘sees no reason that this momentum cannot continue’ and he upgraded his earnings forecasts by 4% for full-year 2024.

‘We move our price target to £12 to reflect Renew’s continued momentum and its high-quality proposition,’ he said."