Renew (RNWH:AIM) chief executive Paul Scott says the engineering services outfit is on track to hit a collection of ambitious financial targets in 2017 after drawing a line under ongoing construction losses.
Renew booked what it expects to be a final charge of £4m on historic construction contracts incurred in its struggling Allenbuild unit during the year to 30 September 2016. The loss is not included in Renew’s headline profit-before-tax number of £22.3m because the division is not considered by management to be part of the company’s ongoing business.
Scott, who replaced retired chief executive Brian May earlier this year, is sticking to his predecessor’s 2017 targets of revenue in excess of £500m, operating profit margins of 4.5% and earnings per share greater than 29p. Renew exceeded the revenue target two years early, delivering revenue of £520m last year.
PROPERTY UPSIDE?
Chief financial officer John Samuel says there may also be some upside from the Allenbuild construction projects after Renew suffered years of losses building them.
‘We’ve taken no account of optimistic recovery potential from the assets,’ said Samuel in an interview with Shares.
‘We are in discussions with clients on that at the moment but I think from a conservative perspective it’s better to draw a line under it and anything that happens from now on can be a positive.’
FULL-YEAR RESULTS
Renew delivered revenue of £526m in the year to 30 September 2016, up marginally from a year earlier according to results published today. Operating profit margin was 4.2% and adjusted earnings per share hit 27.4p, up from 26.0p a year earlier.
After the year-end, Renew completed the acquisition of rail engineering services specialist Giffen for £5m.
Giffen adds to Renew’s Engineering Services division which spans the energy, environment and infrastructure markets.
| EARNINGS ESTIMATES | |||
| Renew - Key metrics (£m) | |||
| 2016 | 2017e | 2018e | |
| Revenue | 525.8 | 565.1 | 581.3 |
| Pre-tax profit | 22.3 | 25.0 | 26.2 |
| Earnings per share | 27.1p | 32.1p | 33.7p |
| Dividend per share | 8.0p | 9.0p | 10.0p |
| Net (debt) cash | 4.8 | 5.0 | 15.0 |
| Source: Numis, 22 Nov 2016 (year-end 31 March) | |||
WEAK REVENUE TREND
Shares in Renew traded 3.9% lower at 398p in early deals as investors mulled what looks like a weaker second half performance in the Engineering Services unit.
Revenue in the unit declined slightly for the full year even though first half sales were 6% higher - indicating an equally large contraction in the second half. One-off contracts which ended in Renew’s last financial year were to blame, according to Scott.
‘We’re on track to deliver our remaining targets,’ said Scott.
‘Our acquisition of Giffen is a good example of where we are looking to broaden our offering and our future strategy.’
Tomorrow’s budget statement may provide further opportunities in infrastructure markets, Scott added.
