Preliminary results from Renew announced today confirm the sound progress announced in its recent trading update.
Renew, formerly Montpellier, trades on a low earnings multiple (around 8 after today's SP gain) and high yield, as a member of the unloved construction sector. Today's results, however, contain some key pointers as to why it might be worth a deeper look:
It is our well established strategy to move the balance of Group revenue to Specialist Engineering, which now accounts for 44% compared with 15% four years ago. This strategy remains valid with both revenue and profit from Specialist Engineering having increased annually over the past four years.
Our strategy remains to focus on two distinct business streams, Specialist Engineering and Specialist Building, progressively moving the balance of Group revenue towards Specialist Engineering. Our aim is to increase revenue in Specialist Engineering both organically and by acquisition, whilst maintaining operating margins of 3% to 4%. In Specialist Building we aim to maintain profitability of at least 1% at the operating level with a longer term target of 2% as and when markets improve.
Note that annual revenues were £290m vs a market cap of just £23m, reflecting typically low operating margins in the sector. The successful focus on higher margin business, with high barriers to entry - such as its nuclear engineering specialism - should be strongly positive for earnings & hence valuation going forward.
The Group has been successful in securing a key supply position on a number of large programmes at Sellafield including the Evaporator D, Encapsulated Product Store, B30 and Separation Area Ventilation projects with total orders received during the year of £30m. Each of these projects involves the provision of an integrated service response.
The order book in Nuclear is some 71% higher than one year ago providing strong visibility for 2011 in this high quality earnings stream.
What about the cutbacks?
Although it may be several months before the detail of the Comprehensive Spending Review is finalised, we expect its impact on the activities of the Group to be limited.
In our Specialist Engineering business, the Nuclear budget has been reconfirmed. In Rail, where we operate primarily in the Greater London area, the Government remains committed to the maintenance and development of the rail and underground networks. Our…
