RWS Holdings Plc

RWS Holdings Plc (LON: RWS) is a FTSE AIM UK 50 Index listed Company, which is involved in intellectual property (IP) support services, patent translations, linguistic validation services, localization, and technical and commercial translations.

Rationale for Valuation – Speculative Buy at GBX 636.50

• The acquisition of SDL (Software and Documentation Localization) made RWS the largest provider of Language Services and Language Technology in the world.
• During the first half, RWS has performed well and achieved £326.4 million of revenues, increasing from the same period last year.
• In FY20, RWS has decent fundamental metrics as it has maintained a net margin and ROE above the industry median.
• The debt/equity ratio recorded by the Company in the past two years was considerably below the industry median. In FY20, the debt/equity ratio was 0.22x.
• On the liquidity front, the current ratio was 2.08x in FY20, which was higher than the industry median.
• From a technical standpoint, 14-day RSI (40.36 levels) supports an upside potential.

Key Risks

• There is a credit risk associated with the financial loss of customers and liquidity risk arising from fluctuating interest and exchange rates.
• The Covid-19 pandemic has also disrupted the customer demand pattern.
• Furthermore, patent filings and demand for language support can be delayed or impacted by Brexit and Covid-19 uncertainties.

Half-year Trading Update (as on 22 April 2021)

• Despite the forex headwinds, the Company delivered a good performance, while the revenue was in line with the expectations.
• RWS would deliver adjusted PBT of at least £50 million during H1 FY21, while it was £33.1 million during H1 FY20.
• Moreover, the Company had net cash of over £10 million as of 31 March 2021.
• Furthermore, RWS has 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.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Earnings Approach (FY21E) (Illustrative)

Conclusion

RWS would seek lucrative market opportunities driving further synergies across all its four divisions. 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 Asian Pacific regions. RWS had delivered resilient business performance during H1 FY21 despite several headwinds such as fore fluctuations. Nonetheless, RWS had anticipated delivering adjusted PBT in line with the current market expectations during FY21. 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 during the period. The stock made a 52-week low and high of GBX 513.00 and GBX 767.00, respectively. On the technical chart, the next important support level is at GBX 549.

Based on the robust balance sheet, good liquidity profile, the bright prospect of RWS IP Services 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 636.50 (as on 14 May 2021 at 1:45 PM GMT), with lower-double digit upside potential based on 33.52x Price/ Earnings (FY21E) (approx.) on FY21E earnings per share (approx.).

Amryt Pharma Holdings Ltd

Amryt Pharma Holdings Ltd (LON: AMYT) is a FTSE AIM All-Share listed commercial-stage biopharmaceutical company, which is dedicated to developing and commercializing novel therapeutics for patients with rare life-threatening diseases.

Rationale for Valuation – Speculative Buy at GBX 164.65

• The Company has increased the 2021 revenue guidance from USD 200-205 million to USD 205-210 million.
• It has shown strong performance during the quarter and announced the proposed acquisition of Chiasma, Inc.
• In the last one year, the Company has delivered a sparkling return of ~54.58%, which was higher than the FTSE AIM All-Share Index.
• On a trailing 12 months, EV/Sales multiple is significantly lower as against the corresponding multiples of the Pharmaceuticals industry.
• On the liquidity front, the current ratio was 2.01x in FY20, which was higher than the industry median.
• From a technical standpoint, 14-day RSI (28.95 levels) supports an upside potential.

Key Risks

• There is a liquidity risk as the company has been incurring losses since its inception.
• Also, the adverse US federal income tax regimes and fluctuating exchange rates can affect the financial condition further.
• Moreover, there is an emerging risk to preclinical studies and clinical trials with the outbreak of Covid-19.

Q1 FY21 Trading Update (for the three months ended 31 March 2021, as on 5 May 2021)

(Source: Company Website)

• During the period, the revenue increased by 8.7% YoY, with an increase in metreleptin revenues of 11.3% YoY and lomitapide revenues of 4.4% YoY. Moreover, on a QoQ basis, the revenue was up by 13.9%.
• On 31 March 2021, the cash stood at USD 118.6 million.
• It announced the proposed acquisition of Chiasma, Inc., while it has signed an agreement with Medison in Canada and in Israel for Multi-regional distribution and product.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)                                                                                           

Valuation Methodology: EV/Sales Approach (FY21E) (Illustrative)

Conclusion

In FY21, the Company expects revenues to be in the range of USD  205-210 million, an increase from the previous guidance (issued on 4 March 2021) and also represents growth of 12-15% versus FY20. Recently, it has signed a definitive agreement to acquire Chiasma, Inc. Meanwhile, the Company delivered strong Q1 results, supported by the positive momentum and a 13.9% increase in revenues from Q4. It also saw growth across the two commercial products globally, while AMYT delivered a number of commercial and regulatory successes in Q1. The EBITDA for Q1 surged by 115% YoY, with positive reimbursement decisions. As per the development, the Company had submitted a regulatory approval for Oleogel-S10 to the FDA and EMA. Overall, the Company made a strong performance and has increased its revenue guidance for 2021. The stock made a 52-week low and high of GBX 105.00 and GBX 250.00, respectively. On the technical chart, the next important support level is at GBX 134.00.

Based on the strong results for Q1, sustainable business growth rate, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Amryt Pharma Holdings Ltd at the current price of GBX 164.65 (as on 14 May 2021 at 1:45 PM GMT), with lower-double digit upside potential based on 3.39x EV/ Sales (FY21E) (approx.) on FY21E sales (approx.).

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

*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 or if the price closes below the support level (indicative stop-loss price).

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.