RWS Holdings PLC (LON: RWS) – Generated £151.5 million revenue from SDL during H1 FY21.

RWS Holdings PLC is an FTSE AIM UK 50 Index listed Company, which is a leading provider of technology-enabled language, content management and intellectual property services. The Company has four broader business divisions - RWS IP Services, RWS Regulated Industries, RWS Language Services and RWS Language Content and Technology. Moreover, RWS was established in 1958. The key customers include 90 of the top 100 brands worldwide, top 10 pharmaceutical companies and top 20 patent filers on a global level.

On 08 June 2021, RWS will announce half-year results for the six months ending 31 March 2021.

(Source: Company presentation)

Recent trend of dividend payments

RWS had paid a final FY20 dividend of 7.25 pence per share on 19 February 2021. Moreover, the ex-dividend date was 21 January 2021. The Company had already paid an interim dividend of 1.75 pence per share. Thus, the total FY20 dividend remained at 9.00 pence per share, up by around 2.9% from the total dividend paid for FY19.

Growth Prospects and Risk Assessment

RWS would seek lucrative market opportunities driving further synergies across all its four divisions. Furthermore, RWS had made significant progress regarding synergy benefits from SDL’s acquisition as it had identified £32 million of annual cost synergies, and it would deliver the savings by September 2022, while £13.2 million would be realised by the end of FY21. Furthermore, the acquisition of Iconic Translation Machines would strengthen the business with award-winning machine translation and artificial intelligence solutions. Also, the acquisition of Webdunia.com (India) Private Limited would support the technology customers in the Indian and Asian Pacific regions.

(Source: Company presentation)

Furthermore, the Company had delivered combined revenue of £4.4 million during H1 FY21 from the acquisition of Iconic and Webdunia. Also, the five months of trading of SDL had generated £151.5 million revenue during H1 FY21.

RWS is undergoing several significant risks, such as credit risk associated with the financial loss of customers and liquidity risk arising from fluctuating interest and exchange rates. RWS has always embraced new translation technologies, such as translation memory. The emergence of NMT (” Neural Machine Translation”) and other technologies would act as a significant risk for RWS. The Company may fail to achieve desired synergy benefits of acquired businesses.

After understanding growth prospects and risk assessments, we will analyse some key fundamental and shareholders statistics of RWS Holdings PLC.

H1 FY21 Trading Update (for six months ended 31 March 2021, as of 22 April 2021)

• RWS had achieved revenues of £326.4 million during H1 FY21 as compared to £169.7 million in an equivalent period of the prior year.
• RWS would deliver adjusted PBT of at least £50.0 million during H1 FY21, while it was £33.1 million during H1 FY20.
• Moreover, the Company had net cash of more than £10 million as of 31 March 2021.

Financial and Operational Highlights for the twelve months ended 30 September 2020 (as of 10 December 2020)

(Source: Company result)

• The total revenue went up by 0.02% year-on-year during FY20 with good growth across Life Sciences and Moravia divisions.
• The adjusted profit before tax decreased by 5.5% during FY20 due to the slightly lower gross margin.
• In 2020, the Company successfully integrated the two acquisitions, namely Iconic Translation Machines and Webdunia.
• Meanwhile, the Company had managed to reduce its net debt from £36.8 million during FY19 to £15.1 million for FY20. 

Share Price Performance Analysis

(Source: Refinitiv, Thomson Reuters)

On 27 April 2021, at 09:35 AM GMT, RWS’s shares were trading at GBX 692.88, down by 0.52% against the previous day closing price. Stock 52-week High and Low were GBX 767.00 and GBX 513.00, respectively.

RWS's prices are trading above the resistance turned support level GBX 645 for the past three weeks, indicating an upside direction for the stock. The trend-following indicators, 21-period SMA and 50-period SMA, also sustaining below the current market price and providing support at the lower end.

In the last five years, RWS’s stock price has delivered a positive return of ~190.82%; and it has outperformed the FTSE All-Share Industrial Support Services index with a return of around 62.24% and the FTSE AIM UK 50 index with a return of about 74.37%.

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

Business Outlook Scenario

RWS had delivered resilient business performance during H1 FY21 despite several headwinds such as foreign exchange fluctuations. The Company had considered an average exchange rate of USD 1.350: £1 during H1 FY21. Nonetheless, RWS had anticipated delivering adjusted PBT in line with the current market expectations during FY21, considering the current exchange rate as the adverse impact of exchange rates would be offset by identified cost synergies. Moreover, the longer-term prospect of RWS IP Services remained bright, particularly in the Asia Pacific region. The RWS Language Content and Technology division had witnessed a decent revenue growth during H1 FY21, and it would carry the positive momentum into H2 FY21 supported by new business wins during the period. Overall, RWS would continue to identify cost-saving synergies through acquisition opportunities.

(Source: Company presentation)

Considering the cash generative nature of the business model, robust balance sheet, good liquidity profile, the bright prospect of RWS IP Services, strong financial performance, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on RWS Holdings at the current price of GBX 692.88 (as on 27 April 2021 at 09:35 AM GMT), with lower-double digit upside potential based on 37.32x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.). 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*The dividend yield is subject to change as per the stock price movement.

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