Regenersis is a hidden gem

At the turn of the year, turnaround specialist Hanover Investors picked up a 14 per cent stake in electronics repairs firm Regenersis. Bowing to shareholder pressure for change, Hanover installed well-regarded Matthew Peacock as executive chairman.

He has wasted little time in conducting a strategic review, the outcome of which is a plan to, target double-digit sales growth and increase profit margins. The review also confirmed that Peacock is hardly starting from scratch; indeed, Regenersis boasts good client relationships and strong technical expertise.

In 2007 it was known as CRC, and merged with Fonebak to create Regenersis. Unfortunately, Fonebak was a business that bought old mobile phones and sold them on, largely to Hong Kong. This business has been in terminal decline due to online competitors as well as a change in customer habits. Now significantly smaller, it won’t prove a drain on profit growth.

Luckily for Regenersis this business was the only weak spot, as Peacock admits: ‘It overshadowed the rest of the group.’ The ace in the pack is a solid business in Eastern Europe, which is high-growth and based in Poland, Romania and Russia. It provides a high-volume, low-cost repair service for OEMs which are keen to outsource
this requirement.

Regenersis has a number of solid blue-chip clients including IBM, Pace, Samsung, Orange and Nokia. The market is fragmented but the majors favour those concerns that can provide a consistent, reliable service.

The European arm enjoys low labour rates and last year achieved sales growth of 42 per cent. It is poised for expansion, with a new facility due to open in Poland, providing plenty of latent capacity.

Business with Nokia has increased, which follows the consolidation of its complex repair requirements across Europe. The products serviced include navigational devices, set-top boxes and laptops. Operational efficiencies have also boosted returns from its Romania-based operations.

New contracts in South Africa and Turkey mean that Regenersis is planning to open sites in these high-growth markets. It also hopes to make selected acquisitions, and the recent signing of a new £15 million facility with HSBC that stretches to 2015 should support this. As the third-largest operator in Europe, there is scope to swallow up smaller competitors with complementary technology.

Regenersis is well placed to tap into market growth in areas that span internet-enabled televisions, smartphones and set-top boxes.

Another area for growth is in technical expertise. Here Regenersis is a great innovator in repair and aftermarket services. Using its technology it can help reduce labour costs, driven by the use of remote access repairs.

Regenersis also has useful market niches, such as a market-leading position in the repair of cash and cashless (chip and pin) machines.

The review spearheaded by Peacock will mean exceptional costs in 2011 of £4 million. This includes the effect of a large loss of contract with Hutchison 3G, and the resultant downsizing of its Glasgow site. It has also closed a site in Thurrock.

However, on the plus side, Regenersis has achieved cost savings and efficiency gains of £2 million, which will benefit its 2012 numbers. It has also secured new contract wins, worth an estimated £6 million.

In a recent trading update, the AIM counter confirmed sales and operating profits would be ‘slightly ahead’ of expectations. For 2012, house broker Arden predicts pre-tax profits to hit a record £7 million, which would leave the shares on less than seven times earnings. It has also recently signed up broker Panmure Gordon to help spread the word.

Regenersis is on a stable footing, has exposure to growth markets and has a good degree of secured repeat revenue. As cash flow improves, management will also consider dividend payments, if appropriate.

Peacock describes Regenersis as a ‘hidden gem’, and we would be inclined to agree – buy.