I first looked at RWS just over a year ago after hearing it mentioned at a Mello investor event. On first glance the numbers looked positive and the excellent track-record of the company from listing in 2003 impressed me. That said it wasn't clear that economic conditions were conducive to this performance continuing; specifically my concerns were:

  • Well publicised European legislation, the Unitary Patent, focused squarely on RWS Group's core market
  • A lack of geographic diversification left the company exposed to Euro weakness and general malaise in the Eurozone
  • A recent acquisition, Inovia, seemed to be struggling to grow and was only profitable at a low margin
  • General downward pressures on margins from customers and a falling return on the capital employed

In light of these challenges I decided that the share was likely to tread water for a while until the future trends became clearer; an outlook that was echoed by moderately gloomy trading updates in the first half of the year. As it turns out this is how events played out right up until October when a very positive trading statement emerged and the share price leapt to a new all-time high!

Now, after seeing Andy Brode from RWS Group at a recent ShareSoc event, I've decided to take a fresh look at the company to see whether my previous concerns remain an issue and if it's not to late to take a position in the company.

Concerns and changes

The number one threat to RWS Group's business model is rationalisation of the patent system in Europe since this accounts for both the firm's largest market and division. So it's useful to hear that the earliest implementation is likely to be in 2017 and that there is little appetite amongst high-end clients for an unproven process: Our research indicates that there is currently only marginal interest amongst large corporates and their professional advisers in full adoption of the new system. That being the case, we anticipate minimal incremental loss of revenues in the first few years after the introduction of the Unitary Patent.

Still it's a long-term risk and the board are clearly working hard on markets beyond European shores and have had recent success winning new clients in China and Japan. At the same time the recent acquisition of U.S. business Corporate Translations Inc delivers both…

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