This group’s profits could treble this year.
REACT Group, the leading specialist cleaning, hygiene, and decontamination company, reported a 78% lift in its revenues in the year to end September 2022, to £13.7m (£7.7m).
The group saw its adjusted EBITDA up 20.0% at £953,000 (£795,000).
The performance represents a strong like-for-like organic growth of some 17% enhanced by the £8.5m acquisition of LaddersFree in May 2022, which contributed to the second half of the financial year.
The Business
Momentum from the final few months of the previous year has continued into the new financial year, and despite the usual slow down across the festive period, the first quarter has delivered a record performance for the group.
The group reports three main areas of business; firstly, Contract Maintenance, where it delivers regular cleaning regimes, (such as in the healthcare, education, retail and public transport sectors); and secondly Contract Reactive, where it is the first responder to an on-call emergency response service operating under a formal contract or framework agreement, typically 24-hours a day, 7-days per week, 365-days of the year. Those two areas together are recurring in nature, having continued to grow at pace and represented some83% of revenue in FY22.
The third area is Ad Hoc, where REACT provides a solution to one-off situations outside a framework agreement, such as for fly tipping, void clearance, and decontaminations.
CEO Shaun Doak stated that:
“We are delighted to report a strong financial performance for the year. The acquisition of LaddersFree has been transformational as it continues to win new blue-chip clients.
The transaction has not only broadened the Group’s offering but has enabled the business to cross sell other business services into existing and new customers. This was evident in the recent new £800k contract win to provide services from all three segments of the business through a coordinated programme to a large fast-service food restaurant across all its sites in the UK.
Strong demand for the Group’s services has continued into the current year and as a result the Board is confident of the outlook for the business.”
Analyst Opinion – shares are a Buy looking for 1.5p Target Price
Greg Poulton at Singer Capital Markets has current year, to end September 2023, estimates for £20.0m (£13.7m) revenues and a trebling in its adjusted pre-tax profits to £2.1m (£0.7m). Reflecting the acquisition equity issue earnings per share are expected to stand still at 0.1p per share.
Conclusion – shares are undervalued
With its shares currently around 1.1p each they are trading on only a 7.8 times price-to-earnings ratio, which is undervaluing the group’s potential.