RWS Holdings Plc – Operating with a strong balance sheet

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.

On 10 February 2021, the Company will hold the Annual General Meeting.

Rationale for Valuation – Speculative Buy at GBX 527.00

• Major transformation programme is underway to drive improved efficiency in FY22 and beyond.
• Significant growth in East Asia, including new wins with major corporates.
• Following SDL acquisition, RWS is now the world's leading provider of language services and language technology.
• The Company witnessed a highly cash generative business model, flexible cost base and strong balance sheet, which provides confidence for the future.
• Over the past four years (FY16 to FY20), revenue and gross profit have surged at a CAGR of ~30.68% and ~27.88%, respectively.
• Adjacently, Debt/Equity at the end of FY20 was 0.22x, which is significantly lower than the industry median of 0.74x.
• The Company has decent fundamental metrics as it has maintained a Net Margin and ROE above 10% for the last two years.
• From the technical standpoint, 90-day RSI stood at around 44.75, which is supporting the upside movement.

Key Risks

• There is a credit risk associated with the financial loss of customers and liquidity risk arising from fluctuating interest and exchange rates.
• 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 (FY20), as on 10 December 2020)

(Source: Company Website)

• The total revenue surged by 0.02% year-on-year, with good growth across Life Sciences and Moravia divisions.
• In 2020, the Company successfully integrated the two acquisitions, namely Iconic Translation Machines and Webdunia.
• The Board has recommended a final dividend per share of 7.25 pence, an increase of 3.6% as compared with the previous year (2019: 7 pence).
• The Company witnessed a strong balance sheet, reduced net debt and improved its cash conversion rate.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The new financial year has begun positively and is slightly ahead of the expectations. The Company has no net debt, and its main focus is on integrating SDL. For FY20, the Company delivered a resilient performance and was in line with market expectations. It has also shown stronger levels of activity in Life Sciences and Moravia. The merger with SDL gives an unrivalled opportunity to the Group and also provide the extensive blue-chip client base. At the end of FY20, the Company had a robust liquidity position and cash generation, which put RWS in a strong position to withstand the uncertain period and explore new opportunities in the future. The stock made a 52-week low and high of GBX 399.71 and GBX 767.00, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on RWS Holdings at the current market price of GBX 527.00 (as on 6 January 2021, before the market close at 11:50 AM GMT), with lower double-digit upside potential based on 28.40x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Caledonia Mining Corporation Plc - Operating with strong financial and operating performance

Caledonia Mining Corporation Plc (LON: CMCL) is a Gold producer, which has a profitable and cash generative business with a strong growth profile.

Rationale for Valuation – Speculative Buy at GBX 1,304.00

• The Company has improved the performance in Q3 FY20, and it has also shown the brighter outlook for 2020, with an increase in the October dividend.
• The Company has decent fundamental metrics as it has maintained a profitability margin and ROE above than the industry median.
• The debt/equity ratio recorded by the Company in the past two years was considerably below the industry median. In June 2020, the debt/equity ratio was 0.01x.
• In the last year, the Company has delivered a sparkling return of ~100.37%, which was higher as compared to the FTSE AIM All-Share Index.
• From the technical standpoint, shares are trading well above the short-term support level of 20-day (approximately GBX 1,233.95) simple moving average price, which reflects an uptrend in the stock.

Key Risks

• Further, there are significant operational risks associated with COVID-19 related restrictions, geological and weather conditions.
• Mining is a hazardous business, and hence, any accident or negative incident could cause production disruption, reputational damage, and financial loss.

Recent News

On 17 December 2020, the Company stated that it had formed an agreement where it has the exclusive right to explore and acquire the mining claims over Connemara North, in the Gweru mining district in the Zimbabwe Midlands.

Trading Update (for the quarter ended 30 September 2020, as on 12 November 2020)

• During the quarter, the Company delivered a strong operating performance, with 15,155 ounces of gold produced and an increase of 10% year-on-year in tonnes mined and milled.
• In Q3 FY20, the revenues increased by 27% year-on-year to US$25.4 million and gross profit surged by 47% year-on-year to US$12.5 million, with a gross margin of 49%.
• The July dividend per share increased by 13.3% to 8.5 cents. Further, the October dividend per share increased to 10 cents.
• Led by a higher insurance premium and an increased share-based payment expense, the all-in sustaining cost per ounce surged to US$1,119 in Q3 FY20 from US$872 in Q3 FY19.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

CMCL has increased the 2020 gold production guidance to a range of 55,000 to 58,000 ounces from a range of 53,000 to 56,000 ounces. The Company witnessed the strong operating performance, with an increase of 12% in gold production in the first nine months of 2020. Moreover, the Company has increased its quarterly dividend, supported by the strong financial and operating performance. As per the recent news, the Company will have a great opportunity to establish a footprint in the Zimbabwe Midlands. It has also shown a strong cash generation, with net cash flow from operating activities of US$7.4 million and net cash and cash equivalents of US$21.6 million. The stock made a 52-week low and high of GBX 582.00 and GBX 1,900.00, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Caledonia Mining Corporation at the current market price of GBX 1,304.00 (as on 6 January 2021, before the market close at 12:07 PM GMT), with lower double-digit upside potential based on 10.00x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

*All forecasted figures and Peers Information have been taken from Refinitiv, Thomson Reuters.

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

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