The office services firm has plenty of scope to grow organically
Thursday 18 Jul 2019 Author: Ian Conway

A £183m fine imposed on British Airways shows how seriously firms have to take the security of their customer data, whether it is online or in old documents that need to be disposed of securely.

Increasing pressure on companies to better manage customer data should play to the skills of offices services firm Restore (RST:AIM) which is an expert in managing data for large organisations.

We’re reviving our ‘buy’ rating on the stock after the shares de-rated and the firm appointed a new chief executive.

The business is in better shape and more firmly-integrated than it was a year ago, having de-geared itself after the acquisition of TNT Business Solutions and disposed of the printer cartridge business in exchange for a minority financial interest in the buyer.

STRONG CASH FLOW GENERATION

Restore’s main business is UK document management which is divided into three streams: storage, scanning and shredding. All three generate strong, stable cash flows without needing high levels of maintenance spending.

Document storage is the biggest single business, accounting for around 45% of group revenue and 70% of profit. Restore provides storage and retrieval of hard copy documents, typically stored in cardboard boxes.

In total it manages over 20m boxes across 45 sites in the UK and its client list includes 90% of FTSE 100 companies, 90% of top 100 UK legal firms, 80% of top 50 accountancy firms and 80% of NHS trusts, which are typical of organisations which still generate and depend on paper documents.

The storage market is fairly concentrated with Restore vying for first place with Iron Mountain, followed by a long tail of smaller providers. This means that pricing is ‘rational’, in the words of new CEO Charles Bligh, while there is still scope to grow both organically and via small acquisitions.

Along with records management, Restore has a scanning business (‘Digital’) which saves stored documents in digital format so that customers can track and access them at any time, helping them to reduce their reliance on paper.

Revenues from Digital were 10% of the group total last year, including the scanning business acquired with TNT BS. Margins were down due to the TNT unit making losses initially but there is scope to improve pricing this year.

TRUSTED PARTNER

The third leg of Restore’s document-handling business is on-site and off-site shredding and the secure destruction of documents, hard drives and identification, which is a logical fit with its other operations and generates around 20% of group turnover.

While many large clients already trust Restore with their data security, there is huge scope to grow with small and medium-sized UK firms and build greater market share.

On top of the documents business, Restore is the UK market leader in commercial and workplace relocation moving the equivalent of 350,000 desks per year through its Harrow Green subsidiary.

Being the number one UK operator and the trusted partner of large firms such as news organisation Bloomberg, social media giant Facebook and fund management group Fidelity, means high levels of repeat business and market-leading operating margins.

Revenues from the relocation business were just under 20% of the group total last year thanks to a ‘steady level of ongoing activity’.

FAST-GROWING TECH BUSINESS

Restore’s final business, which is new and growing fast thanks to the size of the market and the fact that it compliments to the rest of the group, is the installation and recycling of IT equipment.

For its relocation clients, Restore already audits and tags IT assets prior to moving them into storage or to a permanent location. It also offers IT set-up and deployment, saving time getting the kit up and running exactly to the clients’ specification.

Realising that clients also need to dispose of obsolete IT equipment, Restore offers collection and recycling of customers’ kit with secure, fully-tracked destruction of data and environmentally-friendly recycling.

Restore offers a basic, free collection service where it remarkets or recycles the equipment for its own benefit, or for a fee it will remarket the kit and pay the customer a rebate. By taking care of these ‘start-of-life’ and ‘end-of-life’ processes Restore gathers in yet more revenues from its existing clients.

The technology installation and recycling business generated around 5% of group turnover last year and with the acquisition of another small recycler, Spinnaker, in August 2018 revenues are set to rise.

FOCUS ON ORGANIC GROWTH AND MARGINS

After a busy year of acquisitions and disposals under the old boss, the new boss is keen to let everything bed down, keep a lid on costs and focus on finding opportunities to cross-sell more of the firm’s services to its clients.

No doubt there will be one or two small deals to build scale but the main aim for this year is to generate more recurring revenues from within the business rather than branch out into new areas.

Nor is the new chief executive interested in growing the business geographically: the UK market offers more than enough growth potential meaning empire-building abroad is not on the agenda.

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