After three years of earnings downgrades, RS Group PLC (LSE:RS1) finally seems to be finding its footing. Deutsche Bank has upgraded the shares to 'buy' from 'hold', keeping its 760p target unchanged, implying healthy upside from Thursday’s 595p close.
The broker says the latest half-year numbers were “reassuringly in line”, with like-for-like revenue down just 1% and operating margins easing only 50 basis points to 8.7%.
More encouragingly, sales returned to growth in the second quarter, up 1%, helped by early gains from new pricing initiatives that lifted revenue by about 2%.
Cost control has also improved, a sore point in recent years, with management now delivering against its own guidance.
Cash generation was strong, with operating cash conversion at 107%, allowing debt to fall to one times earnings before interest, tax, depreciation and amortisation, the bottom of its 1–2x target range.