React Share Discussion Threads

[rivaldo] 02/12/2024 09:26

Historic revenue and EBITDA to Sept'24 were slightly below forecasts, and Dowgate and Singer's historic EPS to 30/9/24 were just tweaked down a tad to 6.7p and 6.6p EPS respectively.

Such tiny variations aren't enough to bother me. Similarly, MB has explained several times over that the placing for the LaddersFree acquisition was originally at a much higher price, but circumstances (Covid etc) conspired to cause the final placing price to have to be completed quickly and at an unfavourable price.

Aquaflow does indeed look like a very good business bought at a decent valuation.

Forecasts for this current year are now at 9.4p EPS/9.3p EPS, rising to 11.6p EPS/11.3p EPS.

[effortless cool] 24/11/2024 19:16

Just catching up on this one. Seems to be the same old story - a miss against forecasts distracted by an outsize acquisition.

I don't think that REAT have ever hit their forecasts. Now we have revenue of £20.7m against a Dowgate forecast of £21.3. They really do need to get their act together.

Last time the acquisition was LaddersFree. A good company yes, but a transaction done on terms that destroyed value for those shareholders that were not given the opportunity to participate in the prior placing. (We have still not recovered to the heady pre-consolidation levels of over 2p per share).

Now its Aquaflow. This looks like a decent business being bought at a decent price, but it is too big for React's balance sheet and the same group of institutional investors that management let screw over other shareholders in 2022 is in on the act again.

I'm going to update my model over the next week or so and I dare say that there will still be value to be had here. I am concerned, however, that this business seems to be run for the benefit of Mark Braund and a small group of institutional shareholders, rather than the entire shareholder base.

[superhoop2] 05/11/2024 18:36

Well documented that investors will not touch penny shares ... well, that will not be the case tomorrow!

[microscope] 05/11/2024 10:04

Hopefully if/when we reach a pound people won't meekly accept it and sell, feels like this share has plenty more juice in it than that, as institutional buying and broker targets indicate. Suspect we will see some resistance for a brief period, but those that do sell, while they might win in the short term, may regret it in the weeks and months ahead.

[aim999] 05/11/2024 08:16

Difficult to add to my position on this one....a bit frustrating but at least I have a position

[rivaldo] 04/11/2024 10:35

Appreciated vikingben (OT : good results and outlook from CSSG today if you're interested - another small cap on a v.cheap ex-cash multiple).

More new recent highs at REAT this morning.

As well as Dowgate, Singer Capital also updated after the new acquisition. They've raised their target price to 135p (from 120p) and say Buy.

Here's extracts from their summary - they now forecast 9.3p EPS this year and 11.3p EPS next year:

"Significantly earnings enhancing acquisition

React has acquired 24hr Aquaflow Services for a consideration of £5.0m plus contingent consideration of £2.4m. This represents a multiple which is capped at 4.3x EV/EBITDA. 24hr Aquaflow Services is a drainage and plumbing company operating in a complementary sector with similar customers to React. It is profitable (£1.2m EBITDA last year), high margin (56% GM, 19% OM) and cash generative. The acquisition expands React’s service offering, as well as significantly enhancing its earnings. The consideration is funded by a mix of equity, debt and React’s own cash, including a £1.1m equity raise and a new £3.5m debt facility.

We increase our FY25/FY26 EPS forecast by 22%/31%. This leaves the Group trading on a Sep. ’25 P/E rating of 8.7x, falling to 7.2x, which we see as very undemanding. We raise our TP to 135p (12x Sep. ’26 P/E) and retain our Buy recommendation."

"Significant earnings enhancement The acquisition significantly enhances React’s earnings. We estimate an EBITDA contribution of £1.1m in FY25, driving a 36% upgrade, and a contribution of £1.4m in FY26 (first full year), driving a 42% upgrade.

This is intended to be a conservative approach and compares to EBITDA performance targets of £1.6m in year one and £1.725m in year two. Post the impact of the equity raise, we estimate that the acquisition would add 22% to our FY25 EPS forecast and 31% to our FY26 forecast.

Shares trade on 8.7x P/E post deal The earnings enhancement leaves React trading on a Sep. ’25 P/E rating of 8.7x post deal, falling to 7.2x. Its three year average FY1 P/E rating is 10x. UK FM peers trade on an average c.12x P/E, whilst larger, internationally listed peers trade on c.25x. We target a Sep. ’26 P/E rating of 12x to drive our 135p target price (upgraded from 97p). This underpins our Buy recommendation."

[rivaldo] 01/11/2024 10:40

FYI here's Dowgate's summary from their 29th October update, where they raised their forecasts for this year by 16% to 9.4p EPS and next year by 30% to 11.6p EPS:

"Transformation now; firepower for tomorrow

React Group is acquiring 24hr Aquaflow (drainage & plumbing services) for an initial £5.0m consideration with the potential, subject to hitting certain EBITDA
levels (that are not factored into forecasts), for that to increase by an extra £2.4m.

The upfront consideration represents 4.1x EBITDA, for an attractively profitable
and high margin business. The purchase extends React Group’s range of services and brings opportunities for the management to market other Group services to a host of new clients.

Taking the acquisition, £1.1m equity raise, accompanying FY trading update and outlook into account, we increase our FY 2026E EPS by c30% (the first full year). Prior to this deal, we highlighted in our April 2024 initiation note, that the Group had the capacity to make an enhancing move of this magnitude. We take this opportunity to also highlight that as this Group de-gears into 2026E, it should once again be able to make a similarly enhancing move.

Based on the returns we expect from the current business, we raise our TP to 120p
(from 100p); but there is more organic and particularly acquisitive growth to come"

"We are raising our TP to 120p (from 100p) for React Group. This is as a result of the acquisition of 24hr Aquaflow and the inclusion of it into our EVA® and related MVA valuation method. This derives the theoretical share price of 120p per share, assuming the Group reaches an annual free cashflow per annum of c£3.5m by 2028E. Clearly, should the Group be able to attain its medium-term target of c£5m p.a. of free cashflow generation, then greater upside can be realised. With the valuation of this fast growing and cash generative group projected to reduce to just a little over 4x EBITDA and c7x PER by 2026E; we believe the shares are undervalued."

[rivaldo] 31/10/2024 09:25

Indeed - Harwood Capital have increased to 11.051% and now have 2.6m shares:



And Octopus Investments have increased to 17.11% and now own 4.03m shares:

[gipps] 30/10/2024 17:11

Large investors buying more

[rivaldo] 29/10/2024 09:53

Dowgate Capital have also raised their forecasts substantially.

They now forecast 9.4p EPS this year rising to 11.6p EPS next year.

Their target price has been raised to 120p, and they believe this has further upside.

[petewy] 29/10/2024 09:37

See ST n the IC
" Since acquiring the two companies, REACT has achieved impressive organic growth by unlocking cross-selling and upselling of services across the enlarged customer base as well as winning new customers, delivering average organic growth of 24 per cent in the past four financial years. Aquaflow offers similarly strong growth potential and is being acquired at a price that supports upside for REACT’s shareholders, too.

[survived3crashes] 29/10/2024 09:04

This share reminds me of Halma in the early days. Look at Halma now!!!

[jeanesy] 29/10/2024 08:38

breakout :)

[jeanesy] 29/10/2024 08:32

Moving nicely this morning

[davemac3] 29/10/2024 08:21

Chart looking good

[microscope] 28/10/2024 19:44

Initially missed the follow up announcement...

The last five words tell a tale!

'The Company announces that it has successfully placed 1,358,025 Placing Shares at the Placing Price of 81 pence raising gross proceeds of approximately £1.1 million. Net proceeds from the Placing will be used for working capital purposes.

The Placing was heavily oversubscribed.'

[rivaldo] 28/10/2024 15:16

This is a terrific deal imho.

Singer have raised their forecasts to 9.3p EPS this year and 11.3p EPS next year.

Which makes REAT look very cheap indeed imho. Today's acquisition is:

- highly earnings-enhancing
- a cheap acquisition multiple
- lots of recurring income
- lots of synergies via REAT's recent digitisation/new computer systems
- founders staying with the business and incentivised with contingent consideration
- existing large shareholders Octopus, Dowgate and Harwood all buying more shares
- the placing was at almost no discount
- and was "heavily oversubscribed"

And we all know how in demand plumbers and drainage enginners are - this demand is only going to increase assuming the weather becomes more volatile and extreme.

The "at least" £2.4m EBITDA for the year just ended may be a touch behind the £2.5m forecast, but this is completely immaterial, especially given today's news.

[vikingben] 28/10/2024 10:27

Well, the mm’s are wanting more shares, got a quote to sell 50k @82p and a quote to sell 100k @80.2p.
Looks promising to me, will hold on to my lot, my target have not been reached yet.
GLA

[davemac3] 28/10/2024 08:31

Market seems OK with it, although light volume. £3.5m at 8% could be a burden.

[davemac3] 28/10/2024 07:38

Is plumbing and drains complementary to cleaning services? Good there is no discount on the placing.

[jeanesy] 18/10/2024 17:50

Strange UT of 1 share at the close ?!

[vikingben] 16/10/2024 11:56

Max buy 10k, max sell 50k @79.11p

[jeanesy] 12/10/2024 10:37

buys at full ask on friday afternoon.

[vikingben] 09/10/2024 13:44

MM’s want your shares, been quoted to sell all my shares @78p

[rivaldo] 26/9/2024 09:56

Cheers petewy, good to see the entire 21 page article - a very encouraging and in depth piece of research.