RWS Holdings PLC

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.

RWS will pay a final dividend attributable for FY21 of 8.50 pence per share on 25 February 2022. with an ex-dividend date of 27 January 2022.

Rationale for Valuation – Speculative Buy at GBX 575.00

• Dividend Growth: RWS had shown a robust growth of around 17% in the annual dividend payments during FY21.
• Turnaround into Net Cash: 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.
• Operational Progress: RWS had enhanced its clients base and doubled its size with the successful integration of SDL PLC. Moreover, the Company would drive further synergies during FY22.
• UK GDP: Britain's economy grew by a much stronger-than-expected 0.9% in November 2021
• Technical Indicators: 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 of ~34.06 approaches oversold territory.

Key Risks

• UK Services PMI: The UK Services PMI fell sharply to 53.2 in December 2021 from 58.5 in November 2021.
• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.

Recent Developments

Board Changes: On 29 December 2021, RWS updated that Des Glass had resigned from the Chief Financial Officer position with a six months’ notice period.

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

(Source: Company result)

• 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.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

Conclusion

RWS had shown a resilient business performance during FY21, supported by the successful integration of SDL. The Company achieved better-than-expected profitability during FY21, driven by significant contributions made from SDL. RWS aimed to drive sustainable organic growth from an efficient cost base with accelerated investments towards the expansion of scale, footprint, and capabilities for clients. The stock made a 52-week high and low of GBX 701.00 and GBX 513.00, respectively.

Based on the strong FY21 financial results, operational progress, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on RWS Holdings PLC at the current market price of GBX 575.00 (as on 14 January 2022 at 08:02 AM GMT), with lower double-digit upside potential based 24.39x Price/Earnings (approx.) on FY22E Earnings Per Share (approx.).

*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).

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

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

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