Canaccord downgrades RWS, slashes target on exposure to Big Tech, global recession

Analysts at Canaccord Genuity downgraded their recommendation for shares of RWS Holdings from 'buy' to 'hold' given a potential drop in organic revenues in fiscal year 2023.

That was on top of salary inflation, possible pricing pressure and a ramp-up in long-term investments.

All told, earnings per share now looked set to shrink by 8% across FY 2023, instead of remaining flat, to 9% below the consensus, analysts Hayley Palmer and Minal Patel said in a research note sent to clients.

They also highlighted RWS's exposure to 'Big Tech' with firms such as Google, Apple and Microsoft accounting for approximately 20% of its sales, given that they were going into belt-tightening mode.

The translation and management software outfit was also exposed to the now probable global recession with around 30% exposure to "macro-sensitive verticals".

"Adding in the well-known softness in IP services and SaaS transition in Technology, and we estimate up to 70% of RWS sales could decline organically in FY23, potentially accompanied by increasing price pressure," they explained.

Nonetheless, on a long-term basis the analysts did see value in the shares, once the economic outlook brightened and investments diminished.

"But on a 12-month view, move to HOLD with a 330p target (down from 530.0p)."