RPS Group – 2021 will prove to be a year of continued progress

The diverse nature of RPS, coupled with its expertise and global reach, positions it well to capitalise on a recovery in its end markets, writes Mark Watson-Mitchell.

There is a strong movement globally for the protection of the environment and all the peoples living within that environment.

It is a totally laudable aim which attracts investors across the world to help fund and participate in that growth.

It is not a new trend but one that has been expanding for several decades.

An environmental dream

The RPS Group (LON:RPS) was set up over 50 years ago by a team of academics in Oxfordshire, with the dream of creating an environmental planning practice dedicated to making the world a better place.

Today that professional services firm has a global operation defining, designing and managing projects that create shared values to the complex, urbanising and resource-scarce world.

Global spread

It employs some 5,000 consultants and service providers across six continents in 125 countries.

The group’s public and private industry clients stretch across six main sectors – transport, energy, transport, defence and government services, water, and finally, resources.

The services that RPS offers take in advisory and management consulting; communications, creative and digital; design and development; environment; exploration and development; health, safety and risk; laboratories; oceans and coastal; planning and approvals; project and program management; training; and water services.

Excellent institutional backing

There are 277.5m shares in issue.

The larger professional holders include Aberforth Partners (14.1%), RWC Asset Management (8.13%), UBS Asset Management (6.66%), Chelverton Asset Management (5.50%), Threadneedle Asset Management (4.93%), Artemis Investment Management (4.78%), Wellcome Trust (Direct Investments) (4.03%), BMO Asset Managers (3.93%), Montanaro Asset Management (3.68%) and Unicorn Asset Management (3.25%).

Last year’s trading

Last year it was hit by Covid-19 across almost all of its business sectors. However, it still managed to put in a worthy performance with revenues falling only 13% to £457.3m, while adjusted pre-tax profits were down 64% at £13.4m, with earnings dropping 65% to 4.29p per share. There was no dividend declared (2.42p).

The first two quarters of its end-December trading year were hit badly, but the group pushed forward with a stronger momentum in the final half of the year.

Recent Q1 Update

Two weeks ago, the group announced its Q1 update, showing improving trading and continued strong cash management that has been in line with its management’s expectations. 

Apparently, there is an improvement in the group’s fee trajectory, at the same time as management is continuing to focus on margins. 

With the trading update the group’s Chief Executive, John Douglas, stated that, “The performance for the first quarter of 2021 demonstrates the underlying health of the business. RPS remains well placed to benefit from market conditions as they continue to improve and from a growing renewables market. We are confident that in the remaining quarters in 2021, the group will show year on year growth.”

Brokers very positive

Analyst Joe Brent at brokers Liberum Capital is estimating that the current year will see sales up to £492m, with pre-tax profits jumping to £20.0m, worth 5.3p in earnings and able to cover a 1p dividend per share.

For the following two years he sees 2022 with £513m sales and £24.6m profits, generating 6.6p of earnings and covering a 2.0p dividend per share, leading on to 2023 with £528m sales, £27.5m profits, 7.0p earnings and 2.5p of dividend.

Overall picture

The group’s businesses serving government and quasi-government organisations have solid order books, while those servicing the private sector are well positioned to recover as lockdown and travel restrictions ease. 

The group has a strong cash position with significant debt facilities available. 

Very much in the group’s favour as it recovers are the enduring themes that underpin its business of urbanisation, natural resources and sustainability, because they are becoming ever more relevant and benefiting from government stimulus and future investment. 

The diverse nature of RPS, coupled with its expertise and global reach, positions it well to capitalise on recovery in its end markets. 

2021: a year of progress

On the face of it, it is very reasonable to expect 2021 to be a year of progress for RPS and I have to agree with Joe Brent, who says that the shares are a ‘buy’ with a price objective of 110p.

Way back in 2007 the shares peaked at 390p, then seven years later they were 346p, since when they have drifted back to much lower levels.

The shares, which are currently trading at around the 92.5p mark, have risen steadily from 37p at this time last year, and after having peaked at 100.8p in early March this year. 

My View

I will go higher than the Liberum objective of 110p, considering that they could hit 200p in due course.

So, I now set a target price on RPS Group shares at 120p.