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The UK’s need for infrastructure repair is a boon for Renew

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  • Operating profit up 13 per cent 
  • Share price has climbed by 40 per cent in a year

The UK’s creaking infrastructure may be a source of complaints among users of the country’s roads, rail and rivers but it is providing a steady stream of work for Renew Holdings (RNWH).

The Leeds-based contracting group reported a 13 per cent increase in operating profit for the six months to 31 March and has continued to convert most of this into cash. It finished the period with net cash of £42.5mn (excluding leases), up from £35.6mn at the end of September and £17mn a year ago.

The company has been something of a cash compounder in recent years and it has funnelled proceeds back into the business by making bolt-on acquisitions that have added either new capabilities or expanded its geographical reach. 

Chief executive Paul Scott flagged Rail Electrification – acquired for £5.3mn in 2021 – as a business that, working alongside two existing rail businesses, has placed it in a much stronger position to win work on the industry’s latest five-year framework agreements. New budgets are also being set for the next five-year programmes to be carried out across the road and water networks, with spending on the latter likely to increase by 87 per cent based on current business plans.

Renew’s focus on maintenance work means it’s less likely to be affected if whichever party wins this year’s election decides to take an axe to planned capex schemes. Although its shares look quite pricey compared with contracting peers – they trade at 15 times earnings, having risen by 40 per cent over the past 12 months – its strong track record and resilient end markets suggest they remain good value. Buy.

Last IC view: Buy, 807p, 28 Nov 2023

RENEW (RNWH)        
ORD PRICE: 1,026p MARKET VALUE: £812mn
TOUCH: 1,022-1,028p 12-MONTH HIGH: 1,054p LOW: 672p
DIVIDEND YIELD: 1.8% PE RATIO: 17
NET ASSET VALUE: 240p* NET CASH: £23mn
Half-year to 31 Mar Turnover (£mn) Pre-tax profit (£mn) Earnings per share (p) Dividend per share (p)
2023 472 26.3 26.5 6.00
2024 553 30.3 28.7 6.33
% change +17 +15 +9 +6
Ex-div: 06 Jun      
Payment: 10 Jul      
*Includes intangible assets of £176mn, or 222p a share

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