Regenersis (LON:RGS) (176p and 2% of JIC portfolio). During January I met the management of a number of interesting small and mid cap companies, some of which I will comment on in the next week or so. I am starting with Regenersis as I have bought a holding in the company this morning. I was impressed with the management and with the strategy, which if executed successfully should lead to further substantial profit growth in the next few years.
Regenersis mends electronic items such as set top boxes, mobile phones, tablet computers and cash machines. Its clients include Apple, Orange, Virgin Media, Nokia and Samsung. Growth in the business is being driven by geographic expansion, increasing the range of items they repair and by innovation. An example of innovation is its new "infield testing service" which is being rolled out with Virgin Media and an unnamed US company. It is a portable set top box testing unit that hugely increases the number of repairs that are achieved on site thus saving the considerable cost of sending the box back to a central repair facility whilst also improving the customer service experience. It has moved into new territories with acquisitions of Anovo, the Swedish market leader in mobile repair and HDM, the Spanish market leader with facilities in Argentina, and Mexico. In the last two years it has also opened repair facilities in S.Africa, Turkey and Tampa, Florida. Outside the UK it already has operations in Germany, Poland, Romania and Russia. Margins tend to be quite a lot higher in the newer markets than those achieved in the UK, Germany and US. In many of the new territories it has scope to mirror its UK offering by expanding the range of services it provides from what in most cases is currently just mobile repair.
I was impressed by the management team, led by Executive Chairman, Matthew Peacock, who is a turnaround specialist and whose vehicle Hanover Investments LLP has a 22.49% stake in the Company.
In the year to June 2012 the Company grew turnover by 13% and earnings per share by 17%. On the back of these good figures the shares have performed extremely well, virtually doubling since September. It would be easy to think one has missed the boat and dismiss it but I think it is still has good growth opportunities and that the shares do not reflect this. Consensus earnings forecasts for June 2013 are for 40% growth in earnings to 15.75p, followed by 20% growth to 18.95p to June 2014. The shares are valued at 11.2x June 2013 falling to just 9.2x June 2014 and in my view upgrades to these figures are likely. The balance sheet is strong with little debt and in the last financial year, under Matthew Peacock it improved its cash generation and the return on capital employed rose to 68% from 56%. Whilst this is a business that is unlikely to command high margins the current market cap to sales ratio of 0.45 also looks attractive given the improving profitability of the business.
I have bought a 2% holding which I have funded by realising some profits in Quindell (holding reduced to 5%) and Igas (reduced to 1%). I have also cut the holding in Findel to 1.5% as it has hit my stop loss level. I have not sold it all as I suspect that the sell-off since last week's trading statement may be over done, so will observe over the next week. (see Transactions)
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