Strong results put Renew on acquisition trail

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SELLAFIELD contractor Renew Holdings is on the hunt for acquisitions following record annual results.

The Leeds-based company, which derives 15 per cent of its revenues from the Sellafield nuclear plant, is looking to boost either its water or energy businesses with bolt-on acquisitions that will help it reach its £500m turnover target by 2014.

Renew has worked hard over the past few years to minimise its construction business and switch to the more lucrative areas of nuclear, rail and water.

It now operates in highly regulated areas such as energy, the environment and infrastructure, that are critical to the UK economy.

“We carry out critical short-term tasks to keep networks running, be it water, power or whatever,” said Renew’s chief executive Brian May.

“We have got a great opportunity going forward. We can do more for our clients.”

Renew’s business comes from its clients’ operating budgets rather than their discretionary budgets, which means the work has to be undertaken even when the economy slumps.

The group’s markets have high barriers to entry and much of its work is contract renewals, offering good visibility for future revenues.

In the year to September 30, the group reported a 31 per cent increase in its engineering services order book to £235m.

It secured a 22 per cent increase in the number of framework agreements to 62.

A steady stream of contract wins from Sellafield resulted in 12 per cent growth in the nuclear business.

Before exceptional items pre-tax profits rose three per cent to £10m.

Revenues were down four per cent to £337.4m following the decision to pull out of non-lucrative construction work.

Renew’s building business is now focused on luxury residential, social housing and retail. It recently carried out its first store extension for Morrisons.

Following the £20m acquisition of rail and energy engineering business Amco last year, the group is looking to beef up its operations with acquisitions.

“We’re very hopeful we’ll do an acquisition or two,” said Mr May.

“We’re looking at a number of opportunities, but they’re all in the early review stage.”

The group is unlikely to look for rail acquisitions as it is well covered nationally, making water and energy the most likely target areas.

“We’d like a water acquisition and energy is a key area. We’re only on 17 facilities and we’d like to be on more,” added Mr May.

Panmure Gordon analyst Andy Brown said: “These are good results from Renew with adjusted pre-tax profits ahead of expectations, the dividend up five per cent and further reduction in net debt.

“We have a positive view on the outlook for infrastructure spending.

“Renew has good exposure to the key infrastructure areas of energy, environment and rail. While spending can be lumpy the importance of maintaining and improving existing structures is of national economic importance.”

N+1 Singer analyst Michael Parkinson described the announcement as “a strong set of results”.

“Renew is making good progress towards its strategic goals of £500m of revenue and three per cent operating margin by FY14 (the latter having already been achieved) which we estimate could translate into EPS of over 18p versus our current estimate of 15p,” he said.

Engineering Services accounts for over 60 per cent of Renew’s revenues and over 90 per cent of operating profit.

The division focuses on the key markets of energy (including nuclear), environmental and infrastructure.

Specialist Building focuses on new-build affordable housing, high quality residential and retail markets in the South of England.

The group has 76 framework agreements.

Of these 62 are in engineering services and 45 of them are maintenance agreements.