Companies: RWS   

In today’s markets, resilient businesses with strong track records, astute management and highly defensive growth prospects are a must for investors. If the company is a market leader with expanding margins and bumper cash balances, so much the better.

One such venture is RWS, Europe’s leading intellectual property support services play, led by no-nonsense executive chairman Andrew Brode and occupying a market with high entry barriers. Deriving earnings from blue-chip clients operating in diverse sectors across Europe, North America and Japan, RWS is increasing its share of the highly defensive IP translation and services market and offers a longer-term play on China through its presence in Beijing.

Recent interim results to March reflected yet another period of strong growth in the core patent translations business, representing almost 80% of turnover and translating circa 50,000 patents and IP related documents each year. Pre-tax profits increased 26% to £6.8m on a near 20% top line rise to £26.9m and RWS closed the half with net cash of almost £18m, even after acquisition-related spending.

Other highlights included the acquisition of Germany-based technical translations concern Document Service Center (DSC), a February acquisition that Brode believes will boost earnings this year, as well as a 56% surge in revenues from a subscription database service known as PatBase now making a ‘meaningful’ profit contribution.

Upgraded forecasts for September 2008 from house broker Numis point to a rise in pre-tax profits to £14.5m (2007: £11.1 million) and earnings of 25.6p, ahead of £15.65m and 26.1p for 2009. In our view, prospective multiples of 15 and 14.7 fail to reflect the robust growth profile, quality of earnings or track record of RWS, for which the house broker has set a 445p price target. Forecast dividends of 10.4p and 11.4p also mean the shares offer a decent yield, underpinned by the group’s strongly cash-generative model. Strong buy.

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RWS Holdings	AIM	£85.71m	207.50p	-5.00p
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