Something seems to have been missed in translation at language specialist RWS (RWS:AIM) with the shares sinking 20% to a new seven-year low of 190p after the company said it expected full year profit to be at the lower end of consensus market forecasts.

The share price fall takes year-to-date losses to 50% and the shares remain well below the 440p price level at the time of a takeover approach by Baring Private Equity Asia in April 2022.

Also weighing on the shares have been worries over the impact that AI (Artificial intelligence) will have on the business.

‘MAKING PROGRESS’

The company said despite challenging market conditions, the organic revenue decline for the year to 30 September had slowed to 6% from 7% in the first half.

The acquisition of content management firm Propylon and long-term partner ST Communications means reported full year revenue is expected to decline by approximately 2%.

Chief executive Ian El-Mokadem commented: ‘We have continued to make positive progress with our medium-term strategy in the second half of the year, including our growth initiatives, pricing, transformation programmes and expanding our portfolio.

‘We have also made good progress with regard to AI and technology, building on our longstanding expertise and capability, as demonstrated at our recent AI and Technology Teach-In.

‘While we have taken action to ensure that our cost base matches current levels of activity, we remain confident that activity levels will recover in due course.’

WHAT WAS THE MARKET EXPECTING?

The company-compiled consensus called for unchanged revenue of £749 million. Meanwhile adjusted pre-tax profit was expected to come in at £125.8 million, within a range of £116.5 million to £129 million.

Analysts at investment bank Berenberg lowered their 2023 adjusted pre-tax profit forecast by 5.5% to £120.5 million equating to an 11% fall compared with 2022 while also lowering their 2024 by 11% to £121 million.

Despite the challenges, Berenberg is keeping its Buy rating albeit with a lower share price target of 380p. ‘While recent trading has been disappointing, we do not see this as suggestive of a business facing structural pressures: rather one affected by a range of one-off and cyclical factors that should soon reverse.’

Commenting on the AI threat, the bank added, ‘We will publish more detailed work on this topic in time, but our view is that the prevailing market view fundamentally misunderstands the “expert in the loop” operating model that drives the industry, and insulates leading language services providers (like RWS) from this AI threat.’

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