Sketch notes follow, forgive fractured writing style.
Odd thing is that I actually read the original RNS on this, and thought it was an interesting company. I then did nothing about it, until I read a thread on TMF, which convinced me I was wrong to overlook it.
RGS “after market” repairs and refurbishes electronic equipment, performs diagnostics, and so on. So, you buy a phone from Orange, or whatever, it breaks, you send it back, then RGS fixes it. That’s the idea. It is also pioneering “Advanced Solutions”, which include in-field testing, where RGS is partnering with cable operators across the world to diagnose set-top box faults in the home, reducing unnecessary returns. (kudos to the company, BTW, for describing its activities in simple-to-understand terms. None of this “leverage the value-added synergy proposition” nonsense that is all too common to read).
Some basic stats from Sharelock Holmes: yld 1.1% PER 8.3, gearing 9.3%, margin 5.5%, pbv 1.75, ROE 19.14%, pcf 10.93, pfcf 33.39, z-score 3.73, interest cover 10.78, cashflow/eps 3.57, ev/ebitda 6.54, mkt cap £54m. Forecast EPS: 2013F 15.62p +13.6%, 2014F 18.97p +21.45%.
The shares are fairly illiquid.
Some stats from Digital Look: Y/e 30-Jun-2013 revenues expected to be £163m, and increase of 16.6%. RGS is followed by two analysts, who both rate it a strong buy. Biggest shareholder is Hanover, with 10.2m shares valued at £12.2m. Hanover is a specialist active investor in recovery and turnaround situations.
On 25-Sep-2012, RGS announced final results for y.e 30-jun-2012: revenue +13%, operating profit +24%, net debt reduced. Banking facility extended to support organic and M&A, which they say provide “good” opportunities. “Our plan, to deliver double digit sales growth on steadily improving operating profit margins, concentrating on Emerging Markets, Advanced Solutions and niche product, is firmly underway”. Entered Mexico and USA. “We remain optimistic about the ‘opportunity set’ presented to us and are seeing unusually good global acquisition opportunities”
On 26-Sep-2012, a director buys £158k of shares at 101.5p.
On 01-Oct-2012, Matthew Peacock, Executive Chairman, gave a video presentation. Sketch notes follow.
High market share niches
Displayed a 12×9 matrix showing geographies against lines of businesses. They reckoned they’ve captured 25% of the business opportunities according to this matrix. In other words, they have some lines of businesses operating in some geographies, and it is a case of expanding those lines into geographies where they currently have no operations for that line.
Growth 3X 4X current size seems possible
New global sales team
Not a capital intensive business.
No pension deficits, leases, etc
Attractive ROC 68%
New licence agreement with Virgin should kick in, together with a host of other things which aren’t reflected on this years sets of accounts, but will make their way through subsequently.
Emerging market account for about half operating profits, where there is lower competition, higher growth, and higher margins
Western Europe has tight margins – but they’re making progress through cost-cutting
Advanced Solutions has strong margins
Paydown in debt and expanded banking facilities
New management team
RGS looks to be a good recovery play with many growth opportunities, trading on a cheap rating.