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Once I see a excessive dividend yield over 10%, I often count on to see a badly fallen share worth. And that’s precisely what RWS Holdings (LSE: RWS), with its forecast 13.5% yield, exhibits.
We’re taking a look at a 53% droop prior to now 12 months, and it’s down 85 over 5 years. There are extra dangerous indicators that I often count on to come back with a inventory like this. And, nicely, I’m not seeing them right here. However I’ll come again to them.
What went unsuitable?
First-half outcomes launched in June confirmed adjusted revenue earlier than tax down 61% from the identical interval a 12 months in the past, to £18m, with a reported loss earlier than tax of £12.7m. However we’d already been warned of various non-trade one-offs, so it wasn’t a shock. A bit of it’s right down to the price of funding in technological change.
New CEO Ben Faes, who took over in January, spoke of how “modifications in our combine of labor and to new supply fashions for sure shoppers have impacted profitability“.
The corporate offers “language, content material and mental property companies“. That features translation and language help companies. Oh, and manmade intelligence goes to take over that and make firms like RWS redundant, proper?
Properly, with RWS masking authorized companies, mental property, defence, aerospace… we’re speaking about demand for crucial accuracy method past something ChatGPT and the like can supply.
Each sorts of I
RWS talks about its “mixture of AI-enabled know-how and human expertise“. Somewhat than fearing it, the CEO advised us: “Our AI-focused options proceed to achieve significant traction.” He added that the corporate’s technique ought to allow it to “ship accelerated and worthwhile progress and purchase further capabilities by way of centered M&A“.
As an alternative of AI changing people, it wants people to develop it, perceive it, direct it, focus it, right it… the sort of people that work at RWS, hopefully.
Saying that, a large-scale change in an business’s underlying techology brings nice uncertainty and elevates danger. Of that there isn’t any doubt, and anybody contemplating investing in RWS must hold it in thoughts.
What crimson flags?
I have to get again to the crimson flags I search for each time I see an enormous dividend yield like this. I’m speaking about weak confidence in earnings and dividends, and unimpressive share worth forecasts. We don’t have these right here.
Analysts count on a return to optimistic earnings in 2026, adopted by sturdy progress in 2027. They don’t see any break within the dividends, although they received’t be lined by forecast earnings by 2027. However even a 50% lower would nonetheless go away a excessive yield, and I see a security margin there.
As for share worth targets, the consensus is 236p. The shares commerce at solely 88p on the time of writing. Even the low finish of the vary suggests 180p, greater than twice the present worth.
I count on the AI panorama will change dramatically within the subsequent few years. However traders on the lookout for tomorrow’s winners may do nicely to think about RWS Holdings.
