For a firm with its roots in the 18th century, Renew (RNWH:AIM) is not afraid of making changes. This multi-layered engineering company serves various types of UK infrastructure and also boasts a small specialist building division.

If one of its businesses no longer remains profitable, the company is willing to take a financial hit and look for better opportunities.

Renew's interim results on Tuesday 23 May reveal the company divested its loss-making low pressure (LP), small diameter gas pipe replacement activities in April this year. Half year results to 31 March 2017 include this segment, yet still make for cheerful reading.

The numbers

Renew’s revenue grew 9% to £289.4m, with adjusted operating profits up 15% to £12.1m. Broker Numis sees the move out of LP pipe replacement and into medium pressure activities as ‘a sensible move’ which should return this segment to profitability either this year or next. The restructuring did result in a £5.8m non-cash exceptional charge though.

The market’s reaction to Renew’s results is positive, its shares up almost 3% to 469.75p. Paul Scott, the company’s chief executive, says the firm has a good record that has been achieved by both organic growth and bolt-on acquisitions.

Scott points to the acquisition of Giffen in November 2016 as an example; Giffen has expanded Renew’s offering in the rail infrastructure space, where it can now offer electrical and power services to customers.

Broker WH Ireland says that nuclear ‘continues to offer long-term opportunities’ and Scott is well aware of the chances to capitalise on this growing part of the energy market. He says as well as decommissioning, new nuclear power stations are coming on line and his charge is in a strong position to win lucrative work.

Renew - MAY 2017Going forward

Looking at the fundamentals, Renew is trading on a price to earnings ratio of 14.6-times using Numis’s earnings per share forecast of 32.1p. This is a premium to Renew's sector peers, which trade at an average of 11.9-times, although Scott sees scope to go out and double revenues.

But he adds that it’s more important to ‘grow the quality of the earnings rather than just growing the top line’. With Renew’s share price up by 33% in a year, it’s clear the strategy is working, but will it keep up the pace?

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Issue Date: 23 May 2017