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I suspect a lot of UK investors aren’t really looking at shares in Renew Holdings (LSE:RNWH) right now. But they should – the firm is generating record revenues and the stock looks cheap.
Furthermore, it operates in one of the most defensive industries around. So with the share price 10% off its highs, is now the chance for investors to think about snapping up the stock?
A defensive business
Renew provides maintenance for UK water, rail, and energy infrastructure. This involves things like repairing tunnels, fixing burst pipes, and upgrading power lines.
Demand for this kind of work is pretty regular – in fact, it’s mandated by regulation. As a result, it doesn’t really fall away in a recession or depend on expansion projects.
Barriers to entry are also high. Things like rail and water maintenance require specialist certification and firms have little incentive to move from trusted partners like Renew.
All of this means that demand is likely to be strong in future. Changes in regulation might affect what’s required, but the need to maintain infrastructure isn’t likely to go away.
Growth strategy
Interestingly, a stable business doesn’t really come at the cost of growth. Revenues have roughly doubled over the last 10 years and earnings per share are up 264%.
A significant part of this has been the result of acquisitions. By buying other businesses, Renew has developed a presence in various infrastructure markets.
The usual risk with this type of strategy is that there’s an inherent danger of overpaying. But this is something Renew has managed very well.
Focusing on targets that immediately contribute to earnings means the threat of future impairments is limited. And this is reflected in a very strong balance sheet.
Risks and opportunities
Renew’s recent acquisitions have focused on establishing a presence in the renewable energy industry – specifically, servicing wind turbines. This, however, comes with a degree of risk.
The outlook for wind energy depends heavily on the UK’s shift towards renewables in general. But high energy bills mean investors probably can’t rule out a change of direction.
The threat is real, but it’s worth noting that servicing revenues don’t depend on growth in the industry. As long as existing capacity is maintained, demand should stay reasonably strong.
In terms of the firm as a whole, revenues are at record levels and the order book looks very strong. Given this, I think the outlook is very positive for the business.
One to consider
Renew currently trades at a price-to-earnings (P/E) multiple of 14. That’s a multiple that I associate with businesses that are either more cyclical or have more limited growth prospects.
The company might look like it has these properties, but I don’t think it does. In fact, I see it as the opposite – a resilient operation with significant scope for future growth.
Given this, I’m planning to add it to my portfolio in 2026. It might not get the attention it deserves, but that might be to my advantage as someone looking to buy the stock.
