RWS Holdings (LSE: RWS) may not be the flavour of the month with investors right now, the business closing at its lowest for almost a year recently thanks to a disappointing trading update. However, I believe this represents a decent opportunity for long-term investors to dip in and grab a bargain.
The language and translation services provider advised last week that, due to the impact of adverse currency movements since the start of the fiscal year — namely the rampant strengthening of the pound — profits have taken a whack. It added that full-year profits may miss expectations should these exchange rate issues persist during the remainder of the period.
I see this as no reason to panic and sell up, though. Firstly, the sterling strength witnessed more recently may be difficult to sustain given that economic deterioration in the UK has shown signs of accelerating more recently, as illustrated by disappointing first-quarter GDP data last Friday.
Irrespective of these near-term currency-related problems, I am convinced that RWS, which has seen sales and profits shoot higher every year for well over a decade, remains in great shape to deliver brilliant earnings expansion. Demand for its products continues to boom and revenues leapt to £139.6m during October-March from £76.6m a year earlier.
Translation titan
Indeed, despite its latest trading statement, the City is still expecting earnings at RWS to keep surging at double-digit percentages and a 25% rise is forecast for the year to September 2018. An extra 11% advance is forecast for fiscal 2019.
And this leads means that the AIM-quoted business can be picked up on a dirt-cheap forward PEG reading of 0.8, comfortably below the accepted value territory of 1 or below.
An added bonus is that RWS’s bright growth prospects, exceptional cash generation and solid balance sheet with net debt coming in at a better-than-expected £84m as of March, mean dividends are expected to continue improving at quite a pace too.
The Square Mile predicts that last year’s total reward of 6.5p per share will jump to 7.3p in the present period, and again to 8.2p in fiscal 2019. These figures yield 2% and 2.2% respectively. I reckon RWS is a brilliant buy today.
A proven growth hero
Like RWS, Restore (LSE: RST) also has a great track record of delivering eye-popping earnings and dividend growth. The bottom line has more than doubled during the past five years and City brokers expect a lot more where that came from.
A 15% advance is forecast for 2018, and an extra 12% rise is predicted for next year. While a consequent prospective PEG reading of 1.5 may sit above that of the languages specialist, this is still great value in my opinion given the rate at which the office services provider continues to win business.
Revenues at AIM-quoted Restore jumped 36% year-on-year during 2017, to £176.2m, the impact of recent acquisition activity helping to swell the top line. And with the company showing no signs of letting up in the hunt for M&A — it splashed out £88m in March to buy TNT Business Solutions to boost its position in the record management segment — I fully expect profits to keep swelling at a terrific rate.
