Data and digital management firm Restore (RST:AIM) delivered a record financial result for the year to December with pre-tax profits jumping almost five-fold.
Organic growth plus a series of small acquisitions helped supercharge earnings across the group, with the shares gaining 5% to 447p in response.
FULL RECOVERY
Restore posted revenues of £234.3 million for the year to December, a 28% increase on the previous year and nearly 9% above 2019, marking a complete recovery from the pandemic.
Turnover was boosted by a rebound in income previously delayed by Covid-19, organic growth of 5% and around 16% growth from acquisitions.
However, thanks to improving momentum throughout the year the revenue run rate at the end of the fourth quarter was more like £260 million, 20% above 2019’s level.
The acquisition of EDM in April 2021 effectively doubled the exit run rate of the Digital business to £46 million while at the same time delivering margin benefits due to the unit’s increased scale.
Three smaller acquisitions helped double the exit run rate of the Technology business to £34 million, also with a positive margin effect.
Pre-tax profits increased by a whopping 475% to £23 million, while EBITDA (earnings before interest, taxes, depreciation and amortization) rose by 29% in line with turnover.
GROWTH TRAJECTORY
Having restored the business to pre-Covid levels of momentum, chief executive Charles Bligh has set a medium-term revenue target of between £450 million and £500 million.
Bligh argues that figure can easily be achieved by a combination of solid underlying organic growth, further investment in each of the businesses to improve margins and selected bolt-on acquisitions.
With an exit run rate of £260 million of revenues in December, the consensus of analysts’ forecasts for this year and next year - £278 million and £292 million, respectively - does look to be well within reach.
The firm’s medium-term target of £150 million of EBITDA also looks eminently achievable given the last year’s figure of £74.2 million and an exit run rate of around £85 million.
As the business gains in scale and efficiency, underlying top line growth of 4%-to-8% should translate into earnings growth of 7%-to-13% with acquisitions supplementing that number.
EXPERT VIEWS
Analyst Calum Battersby at Berenberg commented: ‘It is clear the company has successfully navigated the pandemic and has now returned to its prior strategy based on organic growth with selective acquisitions at attractive returns.’
Battersby believes the firm’s growth potential isn’t reflected in the current rating of 15 times forward earnings and reiterated his 570p price target and Buy recommendation.
James Wood at Canaccord Genuity observed Restore’s record revenues and earnings underlined ‘the resilient nature of the mission-critical and increasingly technology-enabled services’ which the company provides to its public- and private-sector customers.
As well as keeping his Buy rating, Woods raised his sum-of-the-parts valuation for the group from 615p to 645p.
