RWS Holdings PLC – Delivered a resilient full year performance, in line with market expectations

Established in the year 1958, RWS Holdings PLC 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. It operates through three business segments - RWS IP Services, RWS Life Sciences, and RWS Moravia.

Investment Highlights - Speculative Buy at GBX 530.00

• RWS Holdings PLC (LON: RWS) has attractive and sustainable margins with consistent delivery of earnings growth, which is underpinned by the 16-year track record of constant growth in annual revenue and annual adjusted PBT.
• Going forward, the acquisition of Iconic and Webdunia shall provide access to award-winning niche machine translation and localization offering in the Indian and Asia Pacific markets, respectively.
• Recently, RWS also launched an online study and helping the global research community to assist pharmaceutical entities working on COVID-19 vaccines or treatments.
• From a technical perspective, 14-days RSI (34.35) is supporting the upside potential.
• Over the past five years (FY15 to FY20), revenue and gross profit have surged at a CAGR of ~21.86% and ~30.07%, respectively.

Risk Assessments

• 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.
• Moreover, the inability to integrate the acquired business successfully can create inefficiencies.
• Furthermore, patent filings and demand for language support can be delayed or impacted with Brexit and Covid-19 uncertainties.

Financial Highlights for the year ended 30 September 2020 (as on 10 December 2020)

(Source: Company Website)

• Despite the global Covid-19 pandemic, the Group delivered good growth across Life Sciences and Moravia divisions in FY20.
• The Company also made two successful acquisitions in the year, Iconic Translation Machines and Webdunia.
• It also completed the acquisition of SDL post FY20 period end.
• The Board recommended a final dividend of 7.25 pence, an increase of 3.5% against FY19 final dividend of 7.00 pence.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

RWS started FY21 positively and slightly ahead of expectations. The Group has no debt post acquisition of SDL. The integration of SDL is expected to deliver a broader range of solutions for our clients' language requirements. The Group continued to review a good pipeline of bolt-on acquisition opportunities. The Company is currently focusing on Life Sciences and technology customers, who are likely to be beneficiaries in a post-Covid-19 world. Moreover, joint-sell and cross-sell opportunities makes a promising pipeline for growth. The stock made a 52-week high and low of GBX 767.00 and GBX 399.71, respectively.

Considering the sustainable growth in annual revenue and annual adjusted PBT, new business wins, stronger levels of activity in Life Sciences and Moravia, high level of cash generation capabilities, 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 530.00 (as on 18 December 2020, before the market close at 8.00 AM GMT), with lower-double digit upside potential based on 29.07x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Georgia Capital PLC – Reflected high level of portfolio resilience.

Georgia Capital PLC (LON: CGEO) is a FTSE All-Share listed Company, which provides a platform for buying, building, and developing businesses in Georgia. It currently has the following portfolio businesses: (i) a healthcare services business; (ii) a water utility business; (iii) a retail (pharmacy) business, (iv) an insurance business (P&C and medical insurance); (v) a renewable energy business (hydro and wind assets) and (vi) an education business.

Investment Highlights - Speculative Buy at GBX 503.00

• From a technical perspective, 50-day SMA (450.88) is supporting the upside potential.
• Over the past 1 month, the stock has outperformed the benchmark index by delivering a ~14% price return against ~3% return of the FTSE All-Share index.
• The Company has strengthened its portfolio as 79% of the portfolio is concentrated across Bank of Georgia, and the rest of the portfolio is quite diversified and resilient.
• CGEO’s liquidity remained high, following the 125% y-o-y growth in total net operating cash flow generation in Q3 FY20.

Risk Assessments

• The prolonged economic downturn can massively hit the valuation of Portfolio Companies.
• The business is also prone to substantial financial risk arising from currency volatility, interest rate fluctuations, and liquidity crunch.

Q3 FY20 Results for the quarter ended 30 September 2020 (as on 12 November 2020)

 (Source: Company Website)

• Q3 FY20 demonstrated solid results across the portfolio, with aggregated revenues growing 4.7% y-o-y in Q3 FY20 (up 6.9% y-o-y in 9M FY20).
• The aggregated net operating cash flow was up by 125% year-on-year (y-o-y) in Q3 FY20.
• NAV per share was by 19.5% in Q3 FY20 to GEL 37.84.
• At the end of Q3 FY20, net debt reduced by 37.30% against Q3 FY19.
• The Company’s liquidity remained at GEL 267 million, as of 30 September 2020.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

Despite COVID-19, the aggregated revenue across large portfolio companies increased by 1.3% y-o-y in Q3 FY20 to GEL 303.7 million. Similarly, acquisitions in the investment stage portfolio companies led to 52.6% y-o-y growth in 3Q20 revenues of GEL 19.2 million. The aggregated EBITDA also increased by 4.5% y-o-y in 3Q20 to GEL 87.1 million. Furthermore, with lockdown easing, most of its portfolio business remained largely unaffected by Covid-19 disruption. Overall, the Group is well-placed to deliver continued NAV per share growth in the upcoming quarters. The stock made a 52-week high and low of GBX 980.00 and GBX 343.50, respectively.

Based on above-mentioned factors, we have given a “Speculative Buy” recommendation on Georgia Capital PLC at the current price of GBX 503.00 (as on 18 December 2020, before the market close at 8.00 AM GMT).

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

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