Rws Hldgs reports 86.6% revenue growth in FY2018 and 4.8 pp EBITDA Margin decline from 25.5% to 20.8%

11 Dec 2018 • About Rws Hldgs ($RWS) • By InTwits

Rws Hldgs reported FY2018 financial results today. Here are the key drivers of the company's long term financial model:

Rws Hldgs is a fast growth stock: FY2018 revenue growth was 86.6%, 5 year revenue CAGR was 31.6% at FY2018 ROIC 12.8%
Rws Hldgs has low CAPEX intensity: 5 year average CAPEX/Revenue was 1.7%. At the same time it's in pair with industry average of 2.4%
CAPEX is quite volatile: £2m in FY2018, £1m in FY2017, £1m in FY2016, £1m in FY2015, £5m in FY2014
The company has highly profitable business model: ROIC is 12.8%
It operates with high leverage: Net Debt/EBITDA is 1.0x while industry average is 0.5x

Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.

Revenue and profitability

Rws Hldgs's Revenue jumped on 86.6%. During the last 5 years Revenue growth bottomed in FY2015 at 1.8% and was accelerating since that time. Having stable revenue the company managed to increase EBITDA margin. EBITDA Margin surged on 25.2 pp from -416% to -390% in FY2018. During FY2014-FY2018 EBITDA Margin topped in FY2016 at 26.4% and was declining since that time.

Gross Margin decreased on 4.9 pp from 43.8% to 38.8% in FY2018. During FY2014-FY2018 Gross Margin topped in FY2017 at 43.8%. SG&A as a % of Revenue increased slightly on 1.4 pp from 23.0% to 24.4% in FY2018.

Net Income margin decreased on 5.7 pp from 15.0% to 9.2% in FY2018. During FY2014-FY2018 Net Income margin topped in FY2015 at 16.3% and was declining since that time.

Investments (CAPEX, working capital and M&A)

Rws Hldgs's CAPEX/Revenue was 0.61% in FY2018. CAPEX/Revenue decreased slightly on 0.71 pp from 1.3% in FY2015 to 0.61% in FY2018. It's average CAPEX/Revenue for the last three years was 0.71%.

Return on investment

The company operates at good ROIC (12.8%) while ROE is low (11.0%). ROIC decreased on 7.4 pp from 20.2% to 12.8% in FY2018. ROE decreased on 7.4 pp from 18.4% to 11.0% in FY2018. ROIC declined at -2.6 pp per annum in FY2014-FY2018.

Leverage (Debt)

Debt level is 1.0x Net Debt / EBITDA and 1.6x Debt / EBITDA. Net Debt / EBITDA surged on 0.5x from 0.5x to 1.0x in FY2018. Debt jumped on 156% while cash surged on 90.2%. Net Debt/EBITDA stuck to a growing trend at 0.6x per annum in FY2014-FY2018.

Rws Hldgs has no short term refinancing risk: cash is higher than short term debt (156.9%).

Valuation and dividends

The company's trades at EV/EBITDA 22.2x and P/E 47.5x.

Financial and operational results

FY ended 30 Sep 2018

Rws Hldgs ($RWS) key annual financial indicators

mln. £	2014	2015	2016	2017	2018	2018/2017
P&L
Revenue	93.6	95.2	122.0	164.0	306.0	86.6%
Gross Profit	36.8	37.5	52.2	71.8	118.8	65.6%
SG&A		16.7	25.7	37.8	74.7	97.7%
EBITDA	21.3	22.0	32.2	41.9	63.5	51.8%
Net Income	15.2	15.5	19.3	24.6	28.3	15.1%
Balance Sheet
Cash	22.5	30.6	27.9	20.1	38.2	90.2%
Short Term Debt	0.0	0.0	6.9	9.0	24.3	171.5%
Long Term Debt	0.0	0.0	22.5	31.3	79.0	151.9%
Cash flow
Capex	4.9	1.3	0.7	1.5	1.9	25.2%
Ratios
Revenue growth	20.9%	1.8%	28.1%	34.5%	86.6%
EBITDA growth	6.6%	3.2%	46.2%	30.1%	51.8%

Gross Margin	39.3%	39.4%	42.8%	43.8%	38.8%	-4.9%
EBITDA Margin	22.8%	23.1%	26.4%	25.5%	20.8%	-4.8%
SG&A, % of revenue		17.5%	21.0%	23.0%	24.4%	1.4%
Net Income Margin	16.2%	16.3%	15.8%	15.0%	9.2%	-5.7%
CAPEX, % of revenue	5.3%	1.3%	0.6%	0.9%	0.6%	-0.3%

ROIC	24.5%	23.3%	23.5%	20.2%	12.8%	-7.4%
ROE	20.2%	18.9%	19.9%	18.4%	11.0%	-7.4%
Net Debt/EBITDA	-1.1x	-1.4x	0.0x	0.5x	1.0x	0.5x

Peers in Support Services

Below we provide Rws Hldgs benchmarking against other companies in Support Services industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %


Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Mobilityone Ltd ($MBO)	3.7%	23.0%	-5.3%	37.9%
Mortice Ltd ($MORT)		18.9%	51.1%	36.1%	21.1%
Empresaria Group ($EMR)	-3.3%	-0.3%	44.4%	32.1%
Norish ($NSH)	3.7%	16.4%	16.7%	31.4%
Capital Drilling Ltd ($CAPD)	-15.0%	-20.4%	18.7%	28.0%
Median (49 companies)	3.7%	7.2%	2.2%	6.9%	8.2%
Rws Hldgs ($RWS)		1.8%	28.1%	34.5%	86.6%

Top companies by Gross margin, %


Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Inspired Energy ($INSE)	78.7%	76.2%	80.5%	83.1%
Ienergizer Ltd ($IBPO)	76.8%	72.7%	71.3%	71.2%	69.7%
Spectra Systems Corp ($SPSY)	51.4%	47.6%	68.3%	71.1%
Vianet Group ($VNET)	58.8%	69.2%	70.1%	69.7%	69.9%
Grafenia ($GRA)	56.1%	70.8%	66.3%	63.0%	57.0%
Median (43 companies)	29.2%	28.1%	27.0%	27.9%	26.0%
Rws Hldgs ($RWS)	39.3%	39.4%	42.8%	43.8%	38.8%

Top companies by EBITDA margin, %


Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Northgate ($67GX)	40.6%	39.4%	38.3%	35.9%	35.4%
Spectra Systems Corp ($SPSY)	12.3%	6.0%	19.7%	34.0%
Inspired Energy ($INSE)	1.5%	35.4%	34.4%	32.4%
Vp ($VP.)	24.2%	26.2%	28.4%	28.6%	27.2%
Ienergizer Ltd ($IBPO)	23.6%	17.1%	22.9%	22.9%	24.5%
Median (49 companies)	6.7%	6.9%	4.9%	4.9%	6.5%
Rws Hldgs ($RWS)	22.8%	23.1%	26.4%	25.5%	20.8%

Top companies by CAPEX/Revenue, %


Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Vp ($VP.)	21.6%	25.7%	24.1%	26.0%	23.6%
Augean ($AUG)	12.3%	12.3%	11.0%	10.0%
Petards Group ($PEG)	0.5%	0.9%	1.7%	10.0%
Capital Drilling Ltd ($CAPD)	13.9%	10.1%	13.7%	9.0%
Billing Services Group ($BILL)	2.1%	4.1%	3.0%	4.5%
Median (49 companies)	1.0%	0.9%	1.1%	0.9%	1.1%
Rws Hldgs ($RWS)	5.3%	1.3%	0.6%	0.9%	0.6%

Top companies by ROIC, %


Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Sthree ($STHR)	38.1%	50.2%	46.2%	43.4%
Mortice Ltd ($MORT)	19.6%	21.9%	14.5%	23.2%	18.4%
Petards Group ($PEG)	24.7%	23.9%	22.7%	20.3%
Latham(James) ($LTHM)	17.5%	16.8%	19.2%	19.3%	17.4%
Ienergizer Ltd ($IBPO)	17.9%	10.4%	17.4%	18.1%	19.8%
Median (50 companies)	10.0%	10.4%	7.8%	7.4%	7.9%
Rws Hldgs ($RWS)	24.5%	23.3%	23.5%	20.2%	12.8%

Top companies by Net Debt / EBITDA


Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Nakama Group ($NAK)	5.2x	1.4x	3.1x	48.5x
21St Century Technology ($C21)	-0.8x	-0.2x		11.2x
Ceps ($CEPS)	6.6x	3.8x	13.9x	5.8x
Ibex Global Solutions ($IBEX)	2.7x	1.0x	1.7x	4.5x
Menzies(John) ($68HN)	2.0x	2.4x	1.2x	3.0x
Median (42 companies)	0.3x	0.2x	0.3x	0.2x	0.5x
Rws Hldgs ($RWS)	-1.1x	-1.4x	0.0x	0.5x	1.0x

Rws Hldgs stock price chart

Rws Hldgs financials

mln.	FY2013	FY2014	FY2015

Revenue	77.404	93.556	95.215
EBITDA	20.014	21.336	22.014
Net income	15.918	15.199	15.528
CAPEX	0.376	4.919	1.258
Debt	0.000	0.000	0.000
Cash	18.305	22.479	30.569

About Rws Hldgs

RWS Holdings plc, through its subsidiaries, provides patent translation, intellectual property (IP) support services, and technical translation services in the United Kingdom and internationally. The company operates through four divisions: Patent Translations, Commercial Translations, Information, and inovia. It offers European patent translation and validation solutions; and an optional filing service for patent cooperation treaty, national, and European patent applications, as well as additional IP related translation services for litigation and information purposes, including prior-art documents, office actions, opposition proceedings and correspondence, and written opinions of international searching authorities. The company also provides technical and commercial translation services, including translation of software user manuals, aeroplane specifications, financial reports, insurance policies, press releases, holiday brochures, and birth certificates, as well as language support services. In addition, it offers medical and pharmaceutical translation services, such as translation of clinical trials documentation, health authorities' opinions, approvals and authorizations, healthcare educational material, marketing collateral, pharmacovigilance material, EMA and FDA marketing authorization applications, Training courses, presentations, and video scripts, as well as language support services. Further, the company provides search and retrieval services that encompass IP and other technical literature, such as journals, text books, conference proceedings, and trade literature; and PatBase, a patent database for professional searchers, as well as localization and Web based international filing solutions. It primarily serves chemical, aerospace, defense, automotive, telecom, manufacturing and engineering, energy, law, insurance, and finance industries. RWS Holdings Plc was founded in 1958 and is headquartered in Chalfont St Peter, the United Kingdom.