Only two months ago shareholders saw sufficient potential upside to reject a bid at c. 128p equivalent (i.e., 175p offer, adjusted for a subsequent share issue which added 37.1% to the equity base). They then fully supported an equity issue, which added c. 28.5p cash per share, based on the enlarged capital base.
Operational updates since the bid have all been encouraging with both core businesses well on track (Program Management a year ahead of prior forecasts) to deliver transformational strategies over the next 12-24 months.
The events which led to the recommended bid have affected credibility. A material non-cash impairment to an historic (acquired 15-years ago) legacy portfolio was a source of concern and addressed promptly, as it potentially affected debt covenants and external ratings. Ultimately, it was fixed by a dilutive equity issue, but as both events were unexpected they will have impacted confidence.
Management’s ultimate ambition and the motivation for its five-year strategic plan kicked-off in 2021, is explicitly to create a business with two complementary sources of high-quality, growing revenues and cashflow. All efforts now focus on helping both core businesses to achieve scale and generate reproducible and stable income.
We see RQIH progressively moving away from the sum-of-the-parts valuation relied on previously to an earnings multiple / dividend yield basis, backed by a stable revenue base more akin to a traditional insurer.
Our revised Fair Value / share is 170p.
