Renew Holdings LON:RNWH, the AIM-listed engineering company is expecting a strong year and might well be a worthwhile investment opportunity. The Leeds-based company, founded in 1960, provides primarily civil engineering services to the rail, highways, power and water industries. It also offersing high-end residential refurbishment services.
Eleven subsidiary companies each operate in specialist fields, and with a high degree of autonomy. They provide day-to-day maintenance services to established infrastructure providers. As of end-May the company had group revenue of over GBP550m
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In its latest update from earlier this week, Renew said that it expects that it will beat market expectations for revenue and operating profit, driven by strong organic growth and a solid order book. The market had expected revenues just short of GBP1.1bn and operating profit of around GBP70m. Operating margins were set to be in line with guidance at 6% to 7%.
Renew benefitting from ‘Build, Build, Build’ mantra
The new UK government rode to power in this year’s general election on the back of promises to ‘Build, Build, Build’ and a commitment to simplify the country’s planning system to remove any blocks to development. So the prospects certainly look good for Renew.
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The company has been growing organically, but is not afraid of making strategic acquisitions. Back in June it acquired Salford-based Excalon Holdings for GBP26m. Excalon is a specialist in the electricity infrastructure market, being a provider and installer of high voltage and extra high voltage equipment to the grid. Again, with the new government’s commitment to building up the UK renewable energy sector through the creation of parastatal, Great British Energy, Renew is positioning itself at the right place at the right time. Renew can diversify into the electricity distribution and transmission markets, as part of the group’s strategy to prioritise markets that have recurring maintenance needs, and benefit from long-term, non-discretionary funding programmes.
Excalon acquisition is immediately cash-accretive
Excalon already has contracts outstanding with electricity distribution network operators (DNOs) across the UK. It operates in a regulated market that has five-year control period funding cycles, and Renew expects Excalon to have an uptick of business in the next parliament. The current cycle (RIIO ED2) kicked-off in April and has a funding pool of GBP22.2bn. The transaction, with an initial GBP22m downpayment, was funded from Renew’s existing cash funds. It was based on the Salford company generating a sustainable EBITDA of at least GBP3m a year and was immediately earnings-enhancing for the group.
Renew is something of an under-the-radar company. But with the direction of the wind, the company could have a number of big wins in the next five-years and surpass its recent performance. The company’s shares opened the month (1st October) at 1,108p, up 50.75% over one-year and up 30.4% year-to-date. The company listed in 2006 and has a market cap of GBP832m.
Renew Holdings appears to be well-positioned to capitalise on the UK government’s infrastructure investment plans. With its strong organic growth, strategic acquisitions, and focus on high-growth sectors, the company’s prospects look promising. Investors seeking exposure to the UK infrastructure market may want to consider Renew Holdings as a potential investment opportunity. The company becomes ‘One to Watch’ for The Armchair Trader.
