Restore works in a specialized but vital market
Terry Tanaka says the company has a lot of exciting potential in the years to come.
Some of the best investments are in companies that operate in important but little-known markets, operating in the background and performing tasks that other businesses either cannot afford or do not want to perform.
One such company is Restore (LSE: RST), which is the UK's top supplier of both digital and physical document management services. It destroys outdated documents and keeps records for both public and private sector organizations, including the NHS. Additionally, there is a technology division called Restore Technology and a document-processing company called Synertec that assists businesses in sending both physical and electronic communications. These all assist the company's clients in managing their data, whether it is digital or on paper.
Restore is exceeding expectations.
Restore made 275 million dollars in revenue in 2024. The division in charge of managing and storing documents, information management, accounted for the largest share of revenue (170 million). There is still a sizable and consistent market for this type of storage despite the world's shift over the past 20 years from physical to digital documents, and Restore, as the biggest player in this sector, has the economies of scale necessary to make it successful.
Over the past few decades, the City has questioned this company's viability on several occasions, but in spite of these worries, the company has continuously exceeded expectations. Restore's ability to expand into new markets, like running a "digital mailroom" that scans and digitizes incoming and outgoing mail for customers, has been beneficial. Additionally, it oversees government agencies' physical document processing and exam paper management.
The company "DataShred" is the second-largest division. This accomplishes precisely what it claims to. Serving tens of thousands of businesses annually, it is the biggest document-shredding company in the United Kingdom. The third and fourth important divisions are the technology company and Harrow Green, which assists businesses with office relocation. Restore has discovered that businesses relocating offices must digitize and destroy physical records, even though they frequently decide to keep older records as well. In order to concentrate on its primary business, the company decided this week to sell Harrow Green for £5.5 million in cash.
Restore's promising future.
The technology company assists customers in managing their technological assets, including desktop and laptop computers, to guarantee security over the course of the assets' life cycle. Here, public agencies like the Department for Work and Pensions are among its largest clients. Restore assists the department with setting up new laptops, testing laptops that are in use, and erasing and repurposing laptops that are nearing the end of their useful lives. Thousands of laptops can be processed daily, and each computer can be returned to the workforce in two weeks. Laptops that won't be used by new hires can be disposed of safely and appropriately.
Although it currently makes up only 11% of the group's revenue, this division has enormous potential. The release of Windows 11, the AI product cycle, and the start of the post-Covid technology refresh cycle have all been cited by management as structural growth drivers. It is currently recommended that businesses update their technology every three to five years. The company currently employs 310 people and serves 500 active clients, with the ability to refresh 13,000 assets every week.
Investors shouldn't ignore the organization's document side, even though the technology sector has exciting potential in the years to come. In order to expand this business, Restore paid £33 million to acquire Synertec in March. Synertec is the owner of a proprietary software platform that facilitates communication between clients and their customers through various channels. Clients can use the software to upload customer communications to Synertecs systems and choose how they want the data to be shared.
This can include, for instance, text messages or documents that are printed in braille. A major selling point for Synertec's biggest client, the NHS, with whom it recently reached an agreement on a new four-year framework that will begin in the first quarter of next year, is the company's ability to complete client data requests overnight. Additionally, Synertec serves customers like PandO Ferries, Screwfix, and Hotpoint.
A new path for Restore.
Even though Restore's adjusted profit before tax increased from 23.2 million in 2020 to 34.4 million in 2024, the company's shares have dropped by about 50% since the pandemic. Multiple compression, investor apathy toward UK small caps, and a lack of faith in the company's strategy all seem to be at fault.
However, the City is beginning to embrace the growth story following a management change two years ago. Following the resignation of Charles Bligh, who had taken over as CEO in 2019, Charles Skinner took over as CEO in 2023. After leading the company for ten years, during which the shares increased by more than 2,200 percent, Skinner resigned in 2019. Although Skinner has spent the last two years updating the group and its approach, the market has not yet taken these changes into account.
The shares are trading one standard deviation below the 10-year average price-earnings (p/e) ratio of about 15, according to Berenberg analysts; this is also true on an enterprise value to Ebitda basis. The stock is currently trading at a 2026 p/e of 9.9 and an 8.3 percent free cash flow yield, according to Berenberg.
Canaccord Genuity adopts a similar stance, projecting a free cash-flow yield of 8.3 percent and a p/e of 10 for 2026. Additionally, Restore reported growth ahead of market expectations in its most recent trading update, with margins returning above the medium-term 20 percent target. This led to a wave of growth upgrades from analysts. In the best-case scenario, this growth combined with a return to the company's 10-year average valuation could result in a nearly 70% increase for the shares.
Return the share price.
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