Restore PLC (LON: RST) – 5 acquisitions in the last six months across the Technology, Digital, and Records Management business.

Restore PLC is an FTSE AIM 100 index listed Company, which provides document management and relocation services to offices & workplaces in the private & public sectors. Moreover, RST engaged in services such as physical and virtual data storage, digitisation & automation of data, secure data erasure & destruction, relocation, and IT recycling services. The Company has been listed on AIM since November 2004. It was formerly known as Mavinwood PLC.

On 29 July 2021, RST will release half-year results (H1 FY21).

(Source: Company Presentation)

Growth Prospects (as mentioned in the AGM Trading Update released on 27 May 2021)

• Significant development in acquisition pipeline – The acquisition of Rainbow Holdco Ltd, trading as EDM, worth around £61 million, has fared as per expectation so far, and the Company would achieve several synergies for its growing Digital business. Moreover, RST had strengthened the technology arm with the acquisition of Big Data Management Ltd ("1 Big Data") completed on 20 April 2021.
• Recent project win – The Department for Work & Pensions ('DWP') has awarded RST a document services project worth approximately £10 million to be completed over the span of 20 months starting from June 2021. Furthermore, 95 staff members would be transferred from the current provider to Restore.
• Encouraging demand for the Restore Datashred – The Company is witnessing a robust demand across all geographies, including London, for the Restore Datashred division, particularly after the reopening of the UK economy.

Key Risks

• Rise in the UK property cost – The records management business of RST might be adversely impacted by the material increase in the UK property cost.
• Loss of confidential customer records – The loss of customers critical data may expose RST to reputational damage, and it would impact the potential top-line business.
• Acquisition Risk – The recent acquisitions completed to strengthen the technology business may not achieve desired synergies.
• Rise in Covid-19 cases – The recent increase of Covid-19 cases in the UK may reduce the activity levels and hamper the top-line business of the Company.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Restore PLC.

Octopus Investments Limited is the most significant shareholder as it holds nearly 14.24 million shares as of 31 March 2021. 

FY20 Financial Highlights (for the 12 months ended 31 December 2020, as of 18 March 2021)

(Source: Company result)

• The full-year revenue went down by around 15% to £182.7 million, and adjusted profit before tax plunged by approximately 35% to £23.2 million during FY20.
• The Company had managed to bring down the net debt from £88.5 million as of 31 December 2019 to £66.1 million as of 31 December 2020, driven by the outstanding cash performance during FY20.
• Moreover, the Company had reported a non-cash impairment of £8.6 million on intangible assets and historic investment during FY20.
• RST had achieved sustained recovery during H2 FY20 as activity levels reached almost 90% of pre-covid levels during Q4 FY20.
  

Financial Ratios (FY20)

Share Price Performance Analysis

(Analysis done by Kalkine Group)

On 08 June 2021, at 08:51 AM GMT, RST’s shares were trading at GBX 395.00, up by around 0.77% from the previous day closing price. Stock 52-week High and Low were GBX 435.00 and GBX 280.00, respectively.

On a daily chart, the stock is trading in a rising channel pattern and currently getting support from the lower band of the pattern, indicating an upward direction for the stock. The momentum indicator RSI (14-period) is trading in at ~45.70 levels. The trend-following indicator 50-period SMA trading below the current market price and supporting a positive stance for the stock. The MACD line is trading above the centerline, however, forming negative divergence with the signal line.

Over the last three months, RST’s stock price had delivered a positive return of ~16.42%, while the FTSE All-Share Industrial Support Services index (benchmark sector) had produced a return of around 9.06%, and the FTSE AIM 100 index (benchmark index) had generated a return of around 7.53%. 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

RST had delivered a resilient business performance in FY21 so far as it had continued to win new customers and contracts. The revenue grew by 3% during the first four months period of FY21 as compared to an equivalent period of the prior year. Moreover, the core business had recovered with increased activity levels across all business units. RST had completed five acquisitions in the last six months across the Technology, Digital, and Records Management business.

The Company would continue to seek further lucrative potential acquisition opportunities and aim to materialize it during H2 FY21. Furthermore, the integration of recent Technology acquisitions had progressed well and thus, it expects revenue from Restore Technology to double during FY21 as compared to the prior years. Meanwhile, Restore Harrow Green had witnessed accelerated progress with a good pipeline of projects and office reconfigurations. The Company had anticipated an organic net box growth ranging from 1% to 2% during FY21 for the Records Management business. Overall, RST would aim to deliver consistent double-digit returns to shareholders with significant bottom-line growth across all business units.

The next important support level on the technical chart is GBX 345.00.

Considering the recently completed acquisitions, positive sales momentum in FY21 so far, strong balance sheet, decent profitability levels, strong industry sentiments, robust cash generation, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Restore at the current price of GBX 395.00 (as on 08 June 2021 at 08:51 AM GMT), with lower-double digit upside potential based on 21.68x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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