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.

On 09 June 2022, the Company will release H1 FY22 results.

Recent trend of dividend payments

RWS had paid a final dividend of 8.50 pence per share attributable for FY21 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, taking full-year FY21 dividend to 10.50 pence per share. In comparison, the total FY20 dividend remained at 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 has doubled its size and added new client relationships & capabilities. RWS further aims to generate further synergies during FY22.

• Confidence in Outlook: RWS is no longer evaluating a possible offer from BPEA as the Board believes that the Company has a bright future based on its clearly defined strategy and potential for accelerated organic growth.

Key Risks 

• Profitability Guidance: RWS had expected a slight decline in adjusted profit before tax margin during FY23.
• Record UK Inflation: The rise in regulated household energy bills led to UK inflation leaping to 9% in April 2022, the highest level since 1982. It may adversely impact UK equities.
• Impressive US Jobs Data: The S. jobs report released recently had signalled more interest rate increases in 2022 that could adversely impact the global equities.
• Bank of England Warning: The Bank of England had trimmed its economic growth forecast for 2023 and is expected to show a contraction of 0.25% from a previously estimated growth of 1.25%. Moreover, it had also warned of UK inflation reaching around 10% very soon.

Key Fundamental and Shareholders Statistics of RWS Holdings PLC.

Brode (Andrew Stephen) is the most significant shareholder as it holds nearly 90.19 million shares.

H1 FY22 Trading Update (for the six months ended 31 March 2022, as of 26 April 2022)

• Financial Growth: RWS witnessed a strong first half and expects to report at least £60 million of adjusted profit before tax, reflecting the benefit of synergies following the acquisition of SDL PLC.
• Strong Balance Sheet: With net cash of £38 million on 31 March 2022, the cash profile remained robust.

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. 

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 07 June 2022 at 12:04 PM GMT+1, RWS’s shares were trading at GBX 382.80, down by around 0.98% from the previous day closing price. Stock 52-week High and Low were GBX 681.00 and GBX 326.00, respectively.

On a daily chart, the stock price is hovering 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 45.39.

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

Business Outlook

The Company has achieved a solid business performance during H1 FY22 with more-than-expected adjusted profit before tax of at least £60 million. The margin benefits from increasing volumes through Language Experience Delivery and a positive impact of synergies following the acquisition of SDL PLC led will accelerate the financial progress in FY22. Furthermore, RWS will continue to explore selective acquisitions to complement our organic growth initiatives. The company has low leverage, allowing it to raise funds and concentrate on market expansion and product development. Overall, RWS expects FY22 to remain in line with the expectations.

(Source: Company Filings)

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 FY21 financial performance, strong guidance, decent dividend growth, 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 market price of GBX 382.80 (as of 07 June 2022 at 12:04 PM GMT+1), with lower-double digit upside potential based on 16.35x 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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