Canaccord Genuity slightly lowers target price on RWS Holdings

Analysts at Canaccord Genuity slightly lowered their target price on software and services firm RWS Holdings from 750.0p to 745.0p on Thursday following its "mixed" full-year results.

Canaccord Genuity stated that following an "upbeat, yet detail-light trading update", RWS' full-year results earlier in the week showed a roughly 5% beat of its adjusted pre-tax profit expectations, with sales in line.

However, in a nervous market for technology, media, and telecom stocks, Canaccord said the shares' "soft reaction" tells it investors were ignoring the positives, like accelerating organic growth and margin expansion, and were instead focusing on the bear points.

The Canadian bank stated said bear points were RMS' guidance for a relatively slow post-Covid IP Services recovery and muted software/technology sales momentum due to a shift to software-as-a-service licenses in 2022, which caused it to reduce sales forecasts slightly, a soft free cash flow performance, and rising capitalisations of development costs, which in its view could have driven some of the pre-tax profit outperformance in 2021.

"In our view, on ~21x cal. 2022E P/E the shares trade at an overly harsh 40%+ discount to the global and UK SMIDcap Tech services peer group on ~33x. Our 745p target is slightly tweaked (was 750p) and remains based on a blend of three P/E valuations - a 15% discount to peers, the historical PE and our FY23E synergy/margin bull case of ~£8.60/share," said Canaccord, which also stood by its 'buy' rating on the stock.