A hefty takeover bid for British consultancy RPS Group (LSE:RPS) shows the consultancy’s potential to inspire market confidence from the trenches of Europe’s energy crisis.
RPS Group (LSE:RPS)’s share price got a nice bump, surging nearly 75% to 204p following the offer from Canadian bidder and rival WPS, just shy of the 206p per share offer price.
David Brockton, an analyst at Numis Securities, said the price “provides fair value for shareholders” in a research note today after the consultancy’s financials beat expectations in the first half.
The bid represents a premium of 94% to the consultancy’s volume-weighted average share price of 106p for the 90 days leading up to yesterday, it said in a statement.
The upside reflects growing confidence in the market potential of the diversified company, which is active across a variety of sectors from energy, water, resources and defence to transport and property.
It is one of the last of the listed environmental and infrastructure consultancies standing following extensive industry consolidation, Numis said.
Although there are few smaller consultancies ripe for consolidation left, other potential public acquisition targets could include Willdan Group, which provides consulting services to utilities, property consultancy CBRE UK or on the upper end of the market FTI Consulting or Capgemini.
RPS Group (LSE:RPS)’s financial results go to show that in times of uncertainty, advice is invaluable.
Amid a resource-scarce Europe, RPS offers advice on renewables, carbon capture, hydrogen, nuclear and hydrocarbons.
The professional services firm has 5,000 consultants and service providers and operates across 125 countries.
It reaped £267.4mln in fee revenue in the first half, a 15% increase on the same period of last year, “driven by strong demand” as it picked up clients in the recent ScotWind leasing round.
It also reduced net debt below its targeted leverage of 1x underlying earnings, giving it headroom to take on further debt to support growth if needed.
RPS added today that it would nearly double its interim dividend, to be paid in October, to 0.45p per share compared to 0.26p a year ago.
Until this year, RPS’s share price was trading well below its net asset value, when despite the prevailing volatile market conditions, that trend flipped on its head and its share price began to soar.
“The business was hit through the Covid period and saw a decline in fee revenues and profits during Covid, and hence was on a recovering trajectory and the share price was factoring that recovery,” one analyst told Proactive.
Throughout 2021, RPS was trading at an average price to net tangible asset value (NTAV) of -193.8, which some would have argued made it significantly undervalued.
Yet for a company that might just compete on the lower end of the FTSE 250 in terms of its market cap, which is £564.73 mln, its share price has rebounded.
Its price to net tangible asset value ratio now stands at 41.6, according to SharePad data, which would put it somewhere among the top six companies in the FTSE 250 listing in terms of market confidence.
This is on par with and even exceeds, the likes of Dr Martens PLC (LSE:DOCS) (39.3), Weir Group PLC (LSE:WEIR) (32.3) or former private-equity asset Pets at Home Group PLC (LSE:PETS) (27).
With a market cap of £427.3mln, the only comparable company in the blue-chip listing is power product manufacturer XP Power Ltd (LSE:XPP) following the consolidation of similar consultancies.