This report is an updated version of the report published on 24 May 2022 at 08:09 AM GMT+1

Restore PLC (LON: RST)

Restore PLC is an FTSE AIM 100 index listed Company, which provides document management and relocation services to offices and workplaces in the private and public sectors. The primary operation of the Company is in the United Kingdom.

The Group is expected to announce its H1FY22 interim results on 28 July 2022.

Recent trend of Dividend Payments

The Company had proposed a final dividend of 4.7 pence per share to be paid on 08 July 2022, with an ex-dividend date of 01 June 2022. It has taken the full-year FY21 dividend to 7.20 pence per share. In comparison, the Company had not paid any dividend for the prior year.

Growth Prospects

• Trading Momentum: The Group delivered a decent trading performance in the four months to 30 April 2022, with revenue ahead of the comparative period owing to organic growth and acquisition benefits.
• Acquisition: On 04 May 2022, the company announced the acquisition of 100% of the share capital of Ultratec (Holdings) Limited. The acquisition strengthens RST’s capabilities in technology lifecycle services through Ultratec’s innovative and proprietary software solutions, Genesis, and Nemesis. The transaction has been done in cash for an enterprise value of £9.4 million.

Key Risks 

• Interest Risk: The Central Bank has charted an aggressive policy of hike in interest rate to combat inflation. This can adversely impact the cash flow performance of the Group.
• Record UK Inflation: Inflation has been reported at 40-year peak levels of 9% in April 2022 and can have an impact on the input costs of the company.
• Synergy Risk: The company actively pursues acquisition opportunities for inorganic growth and thus is exposed to the risk of failure to attain synergy in operations.

Key Fundamental and Shareholders Statistics of Restore PLC. 

Octopus Investments Limited is the most significant shareholder as it holds nearly 15.61 million shares.

Trading Update (for the four months period to 30 April 2022, as of 20 May 2022)

• Uptick in Revenue: The Group reported decent trading performance for the four months period to 30 April 2022, with revenue 37% ahead of the prior comparative period.
• Expansion in Run Rate: Run rate revenue expanded from £255 million in January 2022 to over £265 million as of 30 April 2022.
• Contract Wins: Digital and Information management segment experienced high organic growth rates during the period owing to storage expansion and decent demand for integrated services. Restore Digital won and executed key contract wins during the time frame, including Scottish Census.

Financial Highlights (for the year ended on 31 December 2021, as on 16 March 2022)

(Source: Company Filings)

• Strong Top-Line Business: The Company’s top-line revenue grew year-on-year by around 28% to £234.3, million driven by decent organic growth.
• Profitability: The Statutory profit before tax went up by 475% to £23.0 million during FY21.
• Decent Leverage: RST has a strong cash conversion at 85%, with closing net debt at £100.8 million and leverage of 1.8x as of 31 December 2021. 

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 23 May 2022, RST’s shares were closed at GBX 438.00, up by around 1.39% from the previous day closing price. Stock 52-week High and Low were GBX 530.00 and GBX 375.00, respectively.

On a daily chart, the stock price is sustained between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-days RSI stood at ~48.86 levels.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

RST has continued with positive trading momentum into 2022, with further expansion in revenue. The Company has hired additional staff to support increasing activity levels along with a rebound in the business of its clients. The Group has progressed well with its acquisition strategies and has maintained a decent pipeline of strategic deals for potential acquisitions. In a nutshell, the Group remains confident about its prospects driven by organic expansion and coupled with acquisition benefits, which is expected to drive shareholders' return over the medium to long term.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the robust fundamentals, organic growth, acquisitions, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Restore PLC at the closing market price of GBX 438.00 (as on 23 May 2022), with lower-double digit upside potential based on 19.01x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.  

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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