RWS Holdings PLC (LON: RWS)

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. The key customers include 90 of the top 100 brands worldwide, top 10 pharmaceutical companies and top 20 patent filers on a global level.

Recent trend of dividend payments

RWS will pay a final dividend attributable for FY21 of 8.50 pence per share on 25 February 2022. Moreover, the ex-dividend date will be 27 January 2022. The Company had already paid an interim dividend of 2.00 pence per share. In comparison, the total FY20 dividend remained 9.00 pence per share. Thus, the total dividend attributable for FY21 remained around 17% ahead of the dividend paid during FY20.

(Data Source: LSE Website, Research done by Kalkine Group)

Growth Prospects

• Acquisition Benefits: RWS became a leading provider of technology-enabled language, content and IP services following the acquisition of SDL PLC. Moreover, the Company had doubled its size and added new client relationships & capabilities. RWS further aims to generate further synergies during FY22.
• Board Changes: The transition of CEO had fared well, and RWS had changed the Board with the appointment of three new non-executive directors.
• Strong Cash Position: Cash generated from operations increased from £94.6 million during FY20 to £102.0 million for FY21. As a result of strong cash generation and favourable working capital movements, RWS ended FY21 in a net cash position.

Key Risks

• Omicron Variant: The rising Omicron cases in the UK may result in an increase in the restrictions. Thus, it may hamper the growth potential of the Company.
• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.
• Interest Rate Hike: The recent interest rate hike of 0.15% to curb inflation may keep investors’ away from UK Equities.
• UK Services PMI: The UK Services PMI fell sharply to 53.2 in December 2021 from 58.5 in November 2021
  

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

Brode (Andrew Stephen) is the most significant shareholder as it holds nearly 90.17 million shares as of 30 September 2021. 

Financial and Operational Highlights (for the twelve months ended 30 September 2021, as of 14 December 2021)

(Source: Company result)

• Top-Line Business: The total revenue went up by 95% year-on-year during FY21, with good growth across all divisions and significant contributions made by the acquisition of SDL.
• Profitability: The adjusted profit before tax witnessed an increase of around 66% during FY21.
• Balance Sheet: RWS had witnessed a favourable turnaround from reporting net debt of £15.1 million during FY20 to reporting net cash of £45.3 million for FY21.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Data Source: Refinitiv, Analysis by Kalkine Group)

On 21 December 2021, at 08:00 AM GMT, RWS’s shares were trading at GBX 611.66, down by around 1.19% against the previous day closing price. Stock 52-week High and Low were GBX 701.00 and GBX 513.00, respectively.

In terms of technical indicators, RWS's stock price is trading between the lower Bollinger band and the middle Bollinger band, indicating an upside direction for the stock. The 14-days RSI stood at ~45.74 levels.

Over the last six months, RWS’s stock price has delivered a positive return of ~12.57%; and it has outperformed the FTSE All-Share Industrial Support Services index with a return of around 8.32% and the FTSE AIM UK 50 index with a return of negative 2.00%.

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

Business Outlook

RWS had shown a resilient business performance during FY21, supported by the successful integration of SDL. The Company achieved better-than-expected profitability during FY21, driven by significant contributions made from SDL. RWS aimed to drive sustainable organic growth from an efficient cost base with accelerated investments towards the expansion of scale, footprint, and capabilities for clients. However, the stock price may undergo sizeable corrections because of a surprise increase in the interest rates by the Bank of England and a record Covid-19 cases in the UK. Thus, it depends on the risk appetite of the clients to take a reasonable position in this Company having strong fundamentals. Overall, RWS expects FY22 to remain in line with the expectations. 

Considering the acquisition benefits, robust balance sheet, good liquidity profile, impressive dividend growth, strong financial performance during FY21, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on RWS Holdings PLC at the current price of GBX 611.66 (as on 21 December 2021 at 08:00 AM GMT), with lower-double digit upside potential based on 26.88x Price/NTM Earnings (approx.) on FY22E 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.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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