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Insider: heavy buying boosts this £1bn AIM stock

31st October 2022 08:13

by Graeme Evans from interactive investor

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Plenty of stocks are trading at multi-year lows, and directors have seen enough, spending hundreds of thousands on “cheap” shares.

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A flurry of buy trades for top ten AIM stock RWS Holdings (LSE:RWS) included one by its chief executive worth £200,000 after the language services business reassured on recent trading.

RWS, which has grown its dividend every year since its listing in 2003, reported 8% annual revenues growth and reaffirmed guidance given at a capital markets day in March.

Its shares finished the week more than 16% higher at 314.2p, with boss Ian El-Mokadem among the buyers on Wednesday after picking up 65,000 shares at 302.8p.

RWS was changing hands at more than 600p early this year but concerns around its potential exposure to the economic downturn and the impact on translation services of a new “unitary” European patent system left them as low as 264p last week.

House broker Numis Securities has a target of 470p and reckons a valuation of 10.5 times 2023 earnings, with a dividend yield of 5%, is “materially too cheap”.

It points to the strength of the company’s market position, strong balance sheet and potential to deliver double-digit earnings growth if management achieves its medium-term targets.

Founded in 1958, the Buckinghamshire-based company’s clients include 90 of the world's top 100 brands, the top 20 pharmaceutical companies and 19 of the top 20 patent filers.

Its biggest shareholder is executive chairman Andrew Brode, who acquired RWS with support from 3i in 1995 and floated it on AIM eight years later. Despite the recent slide for shares, RWS is still the eighth largest company on the junior market with a valuation of £1.2 billion.

As well as changes to the European patents system, other headwinds this year have included slower spending by some large technology customers and the loss of a big client in its regulated industries division.

The overall 8% growth in revenues for 2022 followed the acquisition of rival SDL, with Numis estimating a small underlying decline in the second half when excluding currency movements.

But the company still delivered a strong year-on-year margin improvement, while its net cash position advanced to £71 million at the end of September.

The group, whose highly cash generative business model has historically allowed the distribution of between 40% and 60% of earnings, told investors last week that it expects to maintain its progressive dividend policy.

El-Mokadem, who joined the business in July 2021 on a £600,000 salary, said the five-year accelerated growth plan outlined in March remains on track as he expects to meet 2023 targets on revenues growth, margins, capital expenditure and other metrics.

He said: “We remain confident in the long-term nature of our market growth drivers and the overall resilience of the group.”

Given the uncertain market outlook, joint broker Berenberg lowered its price target to 500p. However, it added: “We consider RWS to be well positioned for an eventual end-market recovery, with an obvious route to future earnings growth and a rerating in its equity.”

Keep an eye on this minnow

The founder and chief executive of Inspecs Group Ordinary Shares (LSE:SPEC) has spent £200,000 backing the recovery of the eyewear specialist after last week’s significant loss of market value.

Robin Totterman upped his stake to 17.5% and finance director Chris Kay also made an investment worth more than £35,000 after shares slid as far as 43p, from 110p prior to Thursday’s trading update.

The pair bought on Friday at around 52p, but the AIM-listed shares finished the week at 49.6p.

Inspecs, which makes Savile Row frames and Norville lenses, said a significant deterioration in market conditions in France and Germany were the biggest factor in a 13% drop in its order book compared with a year earlier.

The downturn has prompted the company to delay the expansion of its Vietnamese factory and investment in a new site in Portugal.

Inspecs said it continues to grow market share and that it is well placed to return to growth “as and when its core markets return”. It added that Totterman, who founded Inspecs in 1988, is due to become executive chairman from 1 December after current non-executive chair Lord MacLaurin announced his intention to stand down.

House broker Peel Hunt cut its price target on the stock from 395p to 235p, having reduced its earnings estimates for this year and next by 42% and 31% respectively. The shares joined AIM in February 2020 after a placing at a price of 195p raised £94 million.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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    AIM & small cap shares

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