US Edition RWS Holdings
849½p+74
Questor says HOLD
PATENT wars are a growing global phenomenon as corporations seek to protect their technology across highly competitive markets in the US, China, Europe and Japan.
More than 2m patent applications are filed every year. The World Intellectual Property Office reported a 6.6pc increase to 194,000 in the number of patents filed last year, and in Europe there was a similar increase.
Aim-listed patent translation firm RWS Holdings provides a one-stop shop for multinational companies such as Siemens and Ford, who want one technology patent translated into many languages to protect their technology across different markets.
RWS has an unbroken 10-year track record of growing revenue and profits. The company’s core operation of translating patents – 69pc of group revenue – reported a 10.5pc increase in revenue to £53.5m
The other services, which include a searchable database of patents, reported revenues up 6pc to £5.3m, and commercial non-patent translation operations reported 22pc revenue growth to £17.4m.
As the company has grown revenue and earnings it has also provided investors with healthy income growth.
The dividend has quadrupled during the past 10 years. In the most recent set of results, RWS increased the dividend by 15.7pc to 20.3p, ex-dividend on January 22, with cash paid out on February 21. Analysts expect the dividend to grow by 34pc during the next three years and it currently offers a forecast yield of 2.9pc. The dividend is covered 1.8 times by earnings and more than twice by free cash flow.
The company has expanded by spending $29m (£17.8m) on the online patent filing system inovia since 2011. The full ownership of inovia was completed on September 17 this year, and Andrew Brode, executive chairman, announced some ambitious revenue targets as he expects the company to achieve in excess of £100m next year. Analysts at Numis forecast adjusted pre-tax profits of £23.3m, giving 42p in earnings per share.
There is a slight drag on results next year as share options to management will cost £1m.
That said, the company has a solid balance sheet with net cash of £18.2m at the year end. The shares, on 20 times forecast earnings, trade on a premium to sector peer Murgitroyd on 14 times, but part of this is because as a qualifying company they could attract 100pc inheritance tax relief as the Aim share can get business property relief.
One for the watchlist. Hold.