Renew Share Discussion Threads

[wilmdav] 26/5/2017 10:34

Rivaldo

That explanation would certainly fit. Five years is a long time to get away with under investment. There is nothing wrong with prudence in depreciation policy either.

[rivaldo] 26/5/2017 08:35

Thanks for the update from Simon Thompson penpont. Looks like he's aiming for around 530p or so.

Wilmdav, that's surely the point about RNWH - they barely require any cap.ex as they're providing services/expertise/manpower.

Another positive article in the IC (the rest is subscriber-only)....



"Engineering drives Renew

Renew (RNWH) has posted a record set of results for the half-year to the end of March 2017, with adjusted operating profit 15 per cent on the same period last year and adjusted EPS up 16 per cent. These improvements were largely driven by the performance of the engineering services business, which accounts for 80 per cent of group revenue. Revenue here was up 6 per cent to £234m, while the order book increased by 5 per cent to £435m. The division also increased margins by 40 basis points to 5.1 per cent. One notable contributor to the division's performance was the environmental business, which saw benefits from the ramping up of the AMP6 regulatory period."

[wilmdav] 25/5/2017 20:44

I've just updated the RNWH page on the website I use to keep track of my investments. It highlights two persistent features.

I don't recall ever seeing a period of 5 years during which free cash flow per share has exceeded eps by such a large margin. Normally fcfps trails eps. See chart "prof-cash". This is all the more remarkable because they paid out around £3m for pension deficit reduction each year between 2012-14 and £4.3 and £4.7m in 2015 and 2016 respectively. This will continue for a couple of years at least.

Over the same period, the ratio of capex to depreciation is unusually low. See chart "capex".

The two characteristics are obviously related. Either RNWH are over-depreciating; or their business model is such that not much capex is required; or they are starving the company of investment that should be made.

[penpont] 25/5/2017 15:11

Thanks for those rivaldo. Simon Thompson at the IC updated his views yesterday:

'Half-year results from Renew (RNWH:462p), an Alternative Investment Market (Aim)-traded engineering services group specialising in the UK infrastructure market, and on the nuclear, rail and water industries in particular, were bang in line with analyst expectations. Adjusted pre-tax profit increased by 11 per cent to £12m on revenue up 9 per cent to £289m in the six month trading period and, with the engineering services order book up 5 per cent to £435m to maintain the group order book at around £517m, analysts expectations of a similar revenue performance in the second half are fully covered by orders.
Clearly, the board is confident of delivering the 16 per cent increase in full-year EPS to 31.7p as analyst Nick Spoliar at broker WH Ireland predicts as they raised the half-year payout by 13 per cent to 3p, suggesting a 9p a share full-year payout is on the cards. They can certainly afford to be generous as net debt of £3.5m at the end of March 2017 is expected to turn into a net cash position of between £4m and £5m at the end of September 2017 after factoring in the second-half profit and cash flow.
The solid stream of earnings generated by supplying critical infrastructure maintenance services, which produce a return on capital employed north of 60 per cent, looks well underpinned by a raft of contracts in rail infrastructure, the AMP6 cycle in the water industry, and the nuclear industry where Renew is an established player in both decommissioning and decontamination work. Also, the board's decision to withdraw from its loss-making low pressure, small diameter gas pipe replacement activities is a sensible one as it is expected to return Renew's gas business to profitability in the next financial year, albeit it will result in £500,000 of one-off cash costs in the second half and a £5.8m non-cash impairment charge.
The bottom line is that having first recommended buying the shares at 258p ('A small-cap breakout', 14 Aug 2014), and banked dividends of 18.5p since then, I am comfortable advising running profits on this holding having previously recommended top slicing at 470p last month ('Taking profits', 18 Apr 2017). With the shares rated on a forward PE ratio of 15, my instinct is that a bull market top probably lies somewhere between the two target prices of the brokers who cover the stock: WH Ireland's (470p target price) and finnCap's (586p). Run profits.'

[rivaldo] 25/5/2017 12:39

Interview with the FD, mostly about their Yorkshire operations, but a nice snippet about the Giffen acquisition:



"Renew has also benefitted from its recent takeover of Giffen, which specialises in delivering mechanical, electrical and power services for Network Rail and London Underground. Giffem was acquired from private equity firm Rcapital in a £7m deal.

Giffen Holdings, which is based in St Albans, specialises in mechanical, electrical and power services within the railway environment employing 123 staff.

Samuels added: "We didn't have London Underground as a customer before and now we can offer services from the rest of our rail activity that we've worked on such as civil engineering and particularly tunnel work to London Underground.

"The other way to build the business is to grow it by expanding the service offering that we offer to Network Rail, we have a few projects where we have tendered jointly with Amco and Giffen together for projects that neither Amco nor Giffen would have been able to apply for before.""

[grahamburn] 24/5/2017 17:24

Unfortunate typo at start of 4th para from the end!

[rivaldo] 24/5/2017 12:07

Thanks for the IC buy tip penpont.

And another one here rom i.i.i.....I suspect the breakout will be upwards:

"Does Renew Holdings deserve premium rating?
By Lee Wild | Tue, 23rd May 2017 - 17:24

In the dark days of summer 2009, as the market began its fledgling recovery from the financial crisis, there were bargains to be had. Turns out Renew Holdings (RNWH) was one of them. In the past eight years its share price has surged by 2,030%, up from 23p to a high of 490p, and latest record results suggest the business has further potential.

Renew, which runs engineering contracts for nuclear power plants, Network Rail and London Underground, increased adjusted pre-tax profit by 11% in the six months ended 31 March to £12 million. With revenue up 9%, adjusted operating profit margin rose by 20 basis points to 4.2%.

At the core engineering services division, operating profit jumped by 14% to £11.9 million on sales up 6% to £234 million. Margin was 5.1%, underpinning management expectations of hitting its group margin target of 4.5% for the full-year.

The order book is steady at £517 million, and expected revenue for the second half of the financial year is fully secured, we're told.

Chief executive Paul Scott told me there were "no real standouts" during the first half, but that income momentum from two clients in the water sector - just beginning the third year of its sixth asset management period (AMP6) of investment - were "helpful".

And the £7 million acquisition of Giffen Holdings in November is already paying off, broadening the services offered to the rail industry. Previously, Renew did not offer electrical control and power distribution services. It does now.

It's also gained London Underground as a client, which it might otherwise have struggled to do. And Giffen is also becoming more ambitious in the jobs it pitches for, which can only be good for business.

And management is smart enough to know when it's time to cut losses, too, exiting their loss-making low pressure, small diameter gas pipe replacement business. It's meant booking a £5.8 million non-cash impairment charge, and there'll also be redundancy costs, but it does focus the unit on higher margin medium pressure work, which should get the gas operation back into profit next year.

Renew will also swing from net debt of £3.5 million, because of the acquisition, to net cash by the end of September. With the interim dividend hiked by 13% to 3p, the total payout for the 12 months is tipped by analysts to reach at least 9p.

That gives a prospective yield of 2%. It's not the most generous, but it is expected to continue growing in the double digits.

At 459p, Renishaw trades on a forward price/earnings (PE) ratio of 14, although City estimates only factor in mid-single-digit earnings per share growth, suggesting share price progress from here might be more sedate.

However, Guy Hewett at finnCap argues that Renew is still cheap. "Renew's strong track record of delivering essential services on large, long-term frameworks can command a higher rating," says the analyst, repeating his 586p price target.

Howard Seymour at house broker Numis Securities repeats his 'add' recommendation and 500p target, which would put Renew on a PE of 14.5 based on profit forecasts for 2018.

There is an interesting chart formation here, too (see trendlines drawn on chart above), which might imply that a breakout either way is possible soon. One to watch."

[gengulphus] 24/5/2017 11:41

I suppose the worst that can be said here is that the share price rise has stalled in the last 6 months ...

I'd have said the last 3 months, not the last 6 - from looking at a chart, the share price was around 400p six months ago in November, about 450p or a bit above three months ago in February, now still a bit above 450p.

Gengulphus

[wad collector] 24/5/2017 11:00

I suppose the worst that can be said here is that the share price rise has stalled in the last 6 months , but it may be gathering its breath for the next leg up. The price is no bargain on EPS but it is all about future potential. Sitting on some hefty paper profits (fortunately ISAed) but not tempted to sell (Might trade some out if there was another share price surge). Hold and prosper...

[penpont] 23/5/2017 23:14

IC comment:


Renew drives performance through engineering services
TIP UPDATE
Renew Holdings PLC (RNWH)

Renew (RNWH) has posted a record set of results for the half year to the end of March, with adjusted operating profit jumping 15 per cent on the same period last year and adjusted EPS up 16 per cent. These improvements were largely driven by the performance of the engineering services business, which accounts for 80 per cent of group revenue. Revenue here was up 6 per cent to £234m, while the order book increased 5 per cent to £435m. The division also expanded margins by 40 basis points to 5.1 per cent. One notable contributor to the division's performance was the environmental business, which saw benefits from the ramping up of the AMP6 regulatory period.

The group has taken a non-cash impairment charge of £5.8m following disappointing performance from the gas business. At the end of April 2017 it decided to withdraw from loss-making low pressure, small diameter pipe replacement activities to focus on medium pressure, which it says are "lower revenue but...consistently profitable".
Chief executive Paul Scott said the group would remain acquisitive, but had "fine tuned the search criteria" as a result. The recent acquisition of engineering company Giffen has resulted in a net debt position, but the group is expecting to be cash positive by the end of the financial year.
Analysts at WH Ireland are forecasting profit before tax of £24.9m, giving EPS of 31.7p for the September year-end (from £22.3m and 27.2 in 2016).

IC VIEW:
Renew continues to impress with strengthening underlying metrics. Trading at a little under 15 times forecast earnings, it is a touch cheaper than it was when we tipped it. These results compel us to reiterate our earlier recommendation. Buy.
Last IC view: Buy, 440p, 23 Feb 2017

[rivaldo] 23/5/2017 09:20

Finncap have reiterated their Buy and 586p target, saying as follows:

"Renew has reported a strong set of H1 results with sales up +9%, operating
profit up 15% and EPS up 16%. Operating margins have improved from
4.0% to 4.2% and the group is on target for 4.5% for the year. Expected
revenue for H2 is fully secured and a move into net cash is anticipated by
the end of the financial year. We make no changes to our forecasts and
reiterate our view that Renew’s strong track record of delivering essential
services on large, long-term frameworks can command a higher rating."

And importantly imo:

"The group focuses on directly delivering essential works to critical infrastructure which are mainly funded through clients’ operational expenditure budgets."

[rivaldo] 23/5/2017 07:20

A very good set of results, and a confident outlook statement.

With expected revenues for H2 in the bag, order books nice and solid, and prospects good in nuclear, rail, water, telecoms etc there's every reason to feel optimistic looking forward.

With net cash expected in H2 we can likely expect an earnings-enhancing acquisition or two as well.

The gas write-off isn't a surprise given its prior travails, and will mean the remaining business will be profitable.

With 15.5p EPS in H1 being almost exactly half the consensus for the year there's a reasonable chance that those forecasts will be beaten.

[harrogate] 23/5/2017 07:14

Results look very solid and the full year looks in the bag. The statements on confidence in hitting full year looks a bit stronger t me than normal - maybe the new CEO is a little less conservative? Not surprising but still disappointing that we have taken a £5m non cash write off on the gas business - it has been clear for some time that this was a poor acquisition and I suspect has made them a bit wary of the next one. Getting this back to profit has proven difficult and it is now in 2018 - nice dividend increase and with margin increase coming through we look set fair for a while yet. Good enough to get the price to £5? Not sure

[gengulphus] 19/5/2017 11:37

Hardly worth manipulating the market for 37 shares!
I think the idea of such manipulation would be to manipulate the opening price using a small number of shares, then cash in on something more significant! If for example one could manipulate the share price down enough to trigger a reasonable number of shareholders' stop-losses, one might then use the resulting temporary glut of shares on the market to pick up a lot of shares cheaply. Or similarly, one might induce traders using technical analysis to believe an uptrend had ended and so it was time to sell.

Note I'm not saying that idea can be made to work - just that it's plausible enough that someone might be trying it...

Gengulphus

[wad collector] 18/5/2017 10:01

Hardly worth manipulating the market for 37 shares!
Best to look at the trades rather than the spread in low turnover situations esp with smaller capitalisations .

[lignum] 17/5/2017 16:06

Thanks Sharw - looks like the opening auction is being manipulated - I'll bear that in mind in future.

[sharw] 17/5/2017 11:19

I think much is to do with using UTs as the price adjacent to the mid, which is used during the day. I find this irritating at times.

So, at close last night the price was 462.75/472.75 giving a price of 467.75 but the UT was 471.75 becoming the overnight price against which today's changes are measured.

This morning just 22 shares were traded as a result of the opening auction at 450p so that becomes the opening price ("-21.75"). Then at the first trade the mid is 463.75, -8 on the overnight price but -4 on the closing mid.

To make matters worse the intraday graph at the top of this page appears to take AT trades rather than mids so it uses the 150 UT until the first AT trade of 471.75 at 09.24.

Yes, it is confusing.

Edit - yes, and the same happened yesterday - Monday's closing mid was 460.375 but the UT and overnight price was 470. Yesterday morning saw 22 shares (suspiciously identical to today) traded in the opening auction at 450.25.

Whoever is doing this was playing their game on the upside last week: on Wednesday 10th the opening UT was 22 shares at 475 the highest trade of the day. Likewise on Thursday 11th - 22 shares at 475, again the highest trade of the day. Friday was 37 shares at 469.75 once more the highest trade of the day.

[lignum] 17/5/2017 09:50

Anyone know why RNWH has tanked on the open on recent days only to quickly recover? Today is a good example. What trick is this that is being played?

[rivaldo] 11/5/2017 07:25

The Polar Capital UK Value Opportunities Fund was set up in January by two "star" fund managers from Miton, and RNWH has been one of their first investments:



"Hamilton pointed to infrastructure, which ‘has got more certain post EU referendum’. Although chancellor Philip Hammond has not promised to spend any more money, there was still plenty of government spending earmarked for the sector.

To take advantage of this spending the fund is invested in stocks such as Hill & Smith (HILS), which manufactures crash barriers, and Renew Holdings (RNWH) which maintains train lines and operates in ‘critical infrastructure’."

[wad collector] 10/5/2017 10:47

Looks like we might see £5 before too long. Electoral uncertainty prob not a big factor here I suspect...
Interims in 13 days.

[rivaldo] 02/5/2017 13:45

This flood prevention scheme from Seymour Civil Engineers in the North East has been named the winner of the medium-sized project category by the Institute of Civil Engineers - which can only enhance their reputation in this growing sector:

[wad collector] 26/4/2017 09:51

And the share price is boosted by the AIM status as it is IHT free after 2 yrs ; though there are rumours of the IHT rule being abolished in the autumn statement.
Assuming , of course , that the same Govt is in power...

[mfhmfh] 21/4/2017 10:22

rated number 64 in IC's best 100 aim companies

[mfhmfh] 18/4/2017 14:11

run profits according to ST in IC today