Language tip translates into profits

TRANSLATION specialist RWS is firing on all cylinders. At the start of this month, the company said that the year to September 30, 2017, was its best ever, with sales and profits ahead of market expectations. Two weeks later, chairman Andrew Brode announced the £245 million acquisition of Moravia, which specialises in translation for some of the world’s biggest technology companies, including Microsoft, Apple, Google, Facebook and Amazon.

Midas first recommended RWS shares in 2009, when they were priced at the equivalent of 48p. By June last year, they were 232p and last week closed at 449p, almost doubling in price over the past 16 months.

The rise is especially impressive as Brode is funding the Moravia deal with a $160million (£120 million) loan and the issue of more than 43 million new shares, equivalent to almost 20 per cent of the firm.

The new shares were placed with institutional investors at 425p each and the fact the stock has bounced back to current levels is a strong indication that City followers approve of the Moravia deal.

Based in the Czech Republic, Moravia uses a blend of sophisticated software and real-life translators to make sure websites, film subtitles, product manuals and their like are both accurately translated and attuned to local nuances in language and culture.

Two years ago, RWS bought Corporate Translations Inc, an American life-sciences translation business and there was a second smaller acquisition in the same field in February of this year.

RWS has been known as a European patent specialist. Now it is broadening into different sectors and regions. The Czech headquarters could prove useful too if Brexit negotiations turn difficult and RWS has to move some staff out of the UK.

RWS reports its yearend figures in December and brokers expect profits to rise by 41 per cent to £43.3 million with another surge to £65 million in 2018. The group also intends to maintain its progressive dividend policy so brokers are pencilling in a 16 per cent increase in the 2017 dividend to 6.5p, rising to 7.5p next year.

Midas verdict: RWS has proved a canny investment and Brode, who founded the firm in 2003, clearly knows what he is doing. But the shares have come a long way fast. Existing investors could benefit from selling up to a third of their stock. Keep the rest though as the business is in growth mode.