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 was 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.

Key Risks

• Acquisition Risk: If the corporation fails to realize the synergistic benefits of the SDL acquisition, additional restructuring expenses will be incurred, and the Company's margins would suffer.
• Technology Risk: The emergence of disruptive technology such as Neural Machine Translation could pose a significant risk to the RWS business.
• Foreign Exchange: The Company has international operations make it prone to the global economic crisis and foreign exchange volatility.
• Change in Management: The recent change in management could affect the current working as well as plans of the Company.
  

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 31 December 2021.  

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

(Source: Company Filings)

• 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 (FY21)

Share Price Performance Analysis

(Data Source: Refinitiv, Analysis by Kalkine Group)

On 15 February 2022, at 08:26 AM GMT, RWS’s shares were trading at GBX 475.20, up by around 0.04% against the previous day closing price. Stock 52-week High and Low were GBX 701.00 and GBX 469.00, 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 of ~28,73 confirms an oversold position.

Valuation Methodology: Price/Earnings Approach (FY22E)  

Business Outlook

RWS had shown a resilient business performance during FY21, supported by the successful integration of SDL. The Company is increasing sales opportunities by enhancing status as the world leader, leveraging enlarged footprint and sales teams, building new sales structures and processes to reward cross-selling across enlarged Group. The Company has low leverage, allowing it to raise funds and concentrate on market expansion and product development. The management feels confident in the RWS prospect, illustrated by the robust dividend growth. 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 475.20 (as on 15 February 2022 at 08:26 AM GMT), with lower-double digit upside potential based on 19.81x 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 decision should be made depending on the investors’ appetite on 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 subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which 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. 

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 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 unfavorable movement in the stock prices.

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