Interactive Investor

Insider: buying at a firm with great ethical credentials

1st September 2021 08:49

Graeme Evans from interactive investor

CEO thinks UN’s “Code Red” climate change report and Boris Johnson's Green Industrial Revolution are good for business.

The £105,000 purchase of RPS Group (LSE:RPS) shares by CEO John Douglas appeared to fire up investors last Friday afternoon, as the professional services firm soared to near the top of the FTSE All-Share risers.

Abingdon-based RPS had flatlined at about 104p in morning trading, until the disclosure of the previous day's purchase of 100,000 shares by Douglas at a price just below 105p.

There followed a flurry of buying as RPS closed the session 7% higher at 110p for a market cap of about £300 million and its best position since the onset of the pandemic.

The move by Douglas, who has been chief executive since 2017, was made a couple of weeks after he announced the resumption of dividend payments and the company attracted favourable broker comment, with target prices as high as 140p in the wake of interim results.

Adjusted earnings of 2.54p a share were in line with expectations at 25% higher and came alongside bullish comments from RPS about its growth opportunities based around themes linked to urbanisation, natural resources and sustainability.

RPS has a long history of environmental and social engagement dating back to 1970, when Rural Planning Services was formed by a team of Oxfordshire academics who wanted to create a practice dedicated to making the world a better place.

The company now employs 5,000 people and works across six sectors of property, energy, transport, water, resources, defence and government services.

Its work helping clients to enhance their ESG (environmental, social and governance) credentials was reflected in recent results, with renewables now accounting for just under 20% of fee revenues in the energy sector compared with 8% a year earlier.

Liberum analyst Joe Brent said the knock-on effect from the recent “Code Red” report on climate change by the UN “should be positive for all of RPS’s divisions”.

He also expects Boris Johnson's 10-point Green Industrial Revolution and similar initiatives overseas to play to the company's strengths in offshore wind and as a net zero consultant.

The broker points out that management's targets of 5% organic revenues growth and a 10% margin suggests that the business should be capable of earnings per share of 12.2p in 2023 compared with its forecasts for 5.48p at the end of this year.

Liberum lifted its price target to 130p following the results, the same as Berenberg, which reiterated a “buy” recommendation despite shares being up 53% in the year-to-date.

The broker said there was a lack of appreciation from investors concerning the company's new end markets, given that the contribution from oil and gas is down from two-thirds in 2013 to about 15% in the first half of this year.

Berenberg adds that strong UK construction activity, Joe Biden's recently passed infrastructure bill and planning for the 2032 Brisbane Olympics bid should present plenty of opportunities for the company. 

RPS has also flagged its strong position in the water industry in England and Wales, where companies are having to focus on the whole life cost of assets under Ofwat's five-year regulatory framework up to 2025.

Berenberg added: “Along with a pivot to more structurally growing markets, increasingly aligned to ESG trends, we feel the foundations are being laid for the group to move towards its longer-term targets.”

With shares trading on about 13.2 times 2022 earnings, Numis has increased its price target to 140p and RBC Capital is at 130p. 

One for Hunting supporters

Hunting (LSE:HTG) also enjoyed a strong session in the FTSE All-Share on Friday, giving an early boost to the near £10,000 purchase of shares made the previous day by non-executive director Keith Lough, who has been on the board of the well services company since April 2018.

His purchase was made at 198.6p, but the shares closed the week at 207.5p after reassuring comments from US Federal Reserve chairman Jerome Powell boosted sentiment for global markets ahead of the weekend.

Hunting is particularly exposed to the fortunes of the US economy as its Titan division's perforating guns, energetics and instrumentation tools are used in the shale oil Permian Basin region of West Texas.

The purchase by Lough on Thursday followed the company's half-year results, when figures were broadly in line with the previous six months. However, shares fell from 210p to 198p as chief executive Jim Johnson warned that a slower-than-expected recovery in core energy markets would mean full-year earnings about $10 million (£7.3 million) lower than 2020.

He reported progress in diversification efforts and said a strengthening order book boosted the outlook for 2022 as clients plan for new projects amid robust commodity prices.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.