Ticker: REAT Exchange: AIM
REACT Group plc (React) is a specialist cleaning business, operating across three activities: Contract Maintenance, accounting for 65.4% of revenues in FY22, whereby the Company delivers regular cleaning regimes to customers in the healthcare, education, retail, and public transport sectors. Contract Reactive, representing 18.3% of revenues in FY22, where the Group is the first responder to an on-call emergency response service under a formal contract/framework agreement, typically on a 24/7/365 basis. Ad Hoc, equating to 16.3% of FY22 revenues, provides a solution to one-off situations outside a framework agreement, such as for fly tipping, void clearance, and decontaminations.

Records broken and encouraging trends

The Group has delivered record revenues and EBITDA in H1 to March 2023. The rising proportion of recurring revenues, improving margins and strong cash generation in consolidating, specialist markets has resulted in improved visibility. As the final deferred consideration will be paid during FY24, we expect net cash to rise to £3m or 34% of the NAV during FY25. 

Improved visibility generated by the focus on added-value, long term contracts has enabled us to introduce estimates for FY24 and FY25. We anticipate a CAGR in revenues/EBITDA of 15.3%/35.8% respectively between FY22A and FY25F. Adj. EBITDA margins increase from 7.0% to 13.4%. Our expectation is investment in the business and/or M&A will take precedence over dividends for now. We have increased our fair value / share estimate to 2.0p (from 1.7p), a 57% premium to the current price.


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