Berenberg sees 'quality value opportunity' in RWS shares
Analysts at Berenberg issued RWS Holdings with a 'buy' rating on Monday, stating a recent sell-off had left a "quality value opportunity".
Berenberg noted RWS' shares had fallen by 40% year-to-date, with a combination of market-wide and company-specific factors driving "a material sell-off".
In Berenberg's view, the share price drop had left "a clear and obvious route" to a re-rating and share price recovery over the coming years, and, while it expects earnings growth to be lower in fiscal 2023 due to a combination of lower Russian translation volumes, regulatory changes in IP Services and an opex investment programme, the analyst also anticipate "a quick return" to double-digit earnings growth thereafter.
The German bank said RWS' investment programme was designed to recover organic growth to 6%+, which, alongside improving margins and the ability to deploy capital on acquisitions, supported by a growing net cash position, should allow the company to return to its long-term track record of double-digit compounding earnings growth.
"Now trading on a 10x EV/EBIT valuation and with a clear scope for upgrades (we upgrade our forecasts by 2% in this note), we see a clear path to both strong earnings growth and a significant re-rating, driving material shareholder returns," said Berenberg, which also hit the stock with a 650.0p target price.
Berenberg also highlighted Baring Private Equity's recent takeover approach, noting that while it did not result in a bid for RWS, it saw the approach as indicative of the company's "inherent value" to investors as a market-leading firm in a structurally growing sector with high operating margins and returns, a capital-light, highly cash generative business model, and a forecast net cash position.
Reporting by Iain Gilbert at Sharecast.com