RWS Holdings undervalued after recent sell-off, says Shore Capital

(Sharecast News) - Shore Capital has reiterated its 'buy' rating on RWS Holdings, saying that last month's sell-off shows that the market is not pricing in the progress that the AI solutions business has made over the first half. Results for the six months to 31 March released on 11 June were met with a sharp drop in the shares, from 102.7p to the current 76-77p mark.

According to Shore Capital, the interim results showed "clear evidence that RWS's refreshed strategy is beginning to work", though the market remains concerned that a recovery is still incomplete, while the Transform division remains a "key drag", the broker added.

"Exceptional costs, FX headwinds, and the rebased dividend also temper near-term free cash flow progress, while investors continue to debate the longer-term competitive impact of AI on RWS' core model," it said.

Nevertheless, Shore Capital said it still sees "meaningful upside" if RWS can stabilise the Transform business, increase software penetration and convert its AI/product capability into a more recurring, higher-margin revenue.

"RWS' H1 results were followed by a sharp share price sell-off, leaving an already inexpensive business looking increasingly disconnected from the evidence of operational progress," the broker said.

"Risks are more than priced in, in our view, and we believe further evidence of sustained positive Group organic growth, an improving software/AI mix, stronger cash conversion and disciplined capital allocation should help rebuild confidence. We retain our 'buy' recommendation."

RWS shares were up 2.3% at 76.24p by 1401 BST.