Two trans­la­tion firms are get­ting to­gether. Can they speak the same lan­guage?

It’s a fact of stock mar­ket life that the part­ners to a merger of­ten fail to bond. We look at the prospects for RWS and SDL

The Daily Telegraph - Business - - Business - RICHARD EVANS

IT WAS swings and round­abouts for Questor when a rather un­usual takeover deal was an­nounced last week: shares in SDL, tipped here in July 2018, leapt by 30.8pc when RWS an­nounced a bid for the firm, but shares in the lat­ter, a Questor favourite since De­cem­ber 2016, slumped by 13.3pc on the news. Both firms are in­volved in trans­la­tion but the strik­ing as­pect of the deal was that an Aim-quoted firm was bid­ding for one listed on the main mar­ket, a very rare oc­cur­rence. The all-share of­fer was worth £854m at the time it was an­nounced so it is sub­stan­tial in­deed for RWS, which is worth £1.8bn.

Now Questor, and many fund man­agers too, get ner­vous about big ac­qui­si­tions as they can prove harder to ex­e­cute than to con­ceive and of­ten knock pre­vi­ously ex­cel­lent busi­nesses off course. What are we to make of this one? We sought the views of Keith Ash­worth-Lord, who has long held RWS in his San­ford DeLand UK Buf­fet­tol­ogy fund. “I put about an­other £1m into RWS shares when the price fell fol­low­ing the an­nounce­ment,” he said.

“When­ever I see a mega-merger I worry but RWS has done three or four now and made them work.”

He said he was re­as­sured that all the top jobs in the com­bined busi­ness would be done by RWS ex­ec­u­tives but added that “the re­ally in­ter­est­ing thing is the ra­tio­nale”.

“RWS has not so far been much in­volved in ma­chine trans­la­tion be­cause it has spe­cialised in us­ing hu­man trans­la­tors,” he said.

“So be­ing able to of­fer SDL’s soft­ware-based ser­vice rep­re­sents a broad­en­ing of its of­fer­ing. The two firms’ rev­enues are pretty com­pa­ra­ble but RWS is twice as prof­itable.

Get­ting rid of head of­fice costs and so on should save £15m or so but I think they have their eye on other things that will bring SDL’s profit mar­gins up.”

He said that RWS of­fered the more “premium” ser­vice of the two thanks to its highly qual­i­fied trans­la­tors and that hav­ing ac­cess to SDL’s clients would give it the op­por­tu­nity to sell them that more ex­pen­sive ser­vice.

“So far SDL’s clients have been happy with ma­chine trans­la­tion but now they can be of­fered the full RWS ser­vice, which is def­i­nitely the top of the mar­ket,” he said. “Those clients will need some con­vinc­ing but I think it is achiev­able. I don’t know how quickly but this ‘cross-sell­ing’ is the twin­kle in the eye.”

He said the other thing that re­as­sured him was the con­tin­ued pres­ence of An­drew Brode, RWS’s ex­ec­u­tive chair­man, who owns about a third of the com­pany. “I have a lot of con­fi­dence in Mr Brode and his team,” Mr Ash­worth-Lord said. “They are not go­ing to throw away the work of a life­time.

“If I had to back any­one to pull this off it would be th­ese guys.”

We ad­vise read­ers who hold SDL shares to hold on and await con­ver­sion of those shares into RWS eq­uity. We sug­gest that RWS hold­ers stick with the firm.

Questor says: hold Tick­ers: RWS, SDL

Share prices at close: RWS: 645p, SDL: 772p

Up­date: Ama­zon

It’s no se­cret that lock­down has been good for Ama­zon as house­holds have turned to on­line shop­ping. Less ob­vi­ous is that firms ev­ery­where have had to en­sure that their IT can sup­port home work­ing and Ama­zon’s cloud com­put­ing ser­vice, AWS, has been an ob­vi­ous choice for many. AWS also pow­ers Net­flix, a pop­u­lar choice dur­ing lock­down. We tipped Ama­zon in May last year at $1,845 so are pleased to see the shares at about $3,500 now, for a gain of 89pc.

Time to take prof­its? That is what the fund man­ager be­hind our tip has done. Stephen Yiu told in­vestors in his Blue Whale Growth fund last month that Ama­zon, “pre­vi­ously a main­stay of our top 10”, no longer ap­peared there. He said that while he still had a po­si­tion in the stock, “we have de­cided to take some profit on the back of a strong run so far this year”. He added: “Ama­zon re­mains a great busi­ness. How­ever, due to our val­u­a­tion dis­ci­pline, we be­lieve there are bet­ter op­por­tu­ni­ties for growth, and our po­si­tion­ing re­flects this.”

Read­ers could fol­low his lead and re­duce their hold­ing. Questor will how­ever bite the bul­let and sell.

Read Questor’s rules of in­vest­ment be­fore you fol­low our tips: tele­ questor­rules; twit­

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