Broker snap: RWS on undemanding rating

12th Oct 2010 12:10

Intellectual property firm RWS Holdings is an "undervalued unique quality business", according to Numis Securities, RWS's nominated adviser (nomad).The broker has nudged up its price target for the stock from 316p to 323p after RWD's year-end trading statement revealed the company is sitting on more cash than Numis expected.Forecasts for the current financial year, which runs to the end of September 2011, have been tweaked with Numis raising its revenue expectation from €60m to €63m. The broker is sticking with its profit before tax projection of £15.0m, but adds the caveat that this is assuming that "£/€ remains at current mid 80's level, technical translation has stabilised and treating relocation costs as one-off."Based on Numis's earnings estimates the stock trades on a forward price/earnings ratio of 11.1, or about 9 with cash stripped out, and "a progressive yield of 5.5%" adds to the stock's appeal, suggests Numis analyst Francesca Raleigh."The rating is undemanding for an attractive asset in the IP [intellectual property] space (high margins intact, cash generation, market leadership) and there is PE [private equity] interest in the space," added the broker, which rates the shares a "buy"."Risks include legislation (RWS believe the implementation of the European Community Patent is many years away and that the London Agreement is behind them), reputation (human error), currency (RWS has largely sterling costs and Euro billings which it seeks to mitigate with a short term hedging strategy), client spending patterns (e.g.. timing and filing of patents) and pricing pressure," the broker concluded.