Now is the time to really tidy up your Small Cap portfolios by adding some REACT Group shares before this Wednesday’s Final Results announcement, shares now 84.50p, analysts look for a 135p value

Mark Watson-Mitchell
Jan 27
4 min read

27.01.2025

Later this week REACT Group (LON:REAT) will be declaring its results for the year to end-September 2024.

It is expected to show revenues of around £20.7m (£19.6m), up some 5.6%, with an improving gross profit margin of 27.5% (26.5%), lifting its EBITDA to £2.4m (£2.3m).

But that was last year!

Following the late October 2024 acquisition of 24hr Aquaflow Services, for up to £7.4m, analysts are now looking for the group’s shares to be valued in the 120p to 135p range, as compared to the current lowly 84.50p.

The Business

REACT Group is a provider of specialist cleaning, decontamination, and hygiene services, including both contracted commercial cleaning and specialist emergency decontamination work.

The company operates through three segments: Contract Maintenance, Contract Reactive and Ad Hoc work.

The Contract Maintenance segment is engaged in providing scheduled cleaning services across various sectors, including healthcare, education, retail, industrial, and public transport.

The Contract Reactive segment provides emergencies 24/7/365 under formal contracts or framework agreements.

The Ad Hoc work segment provides a solution to one-off situations outside a framework agreement, such as for fly-tipping, void clearance, and decontaminations.

The company’s services include air duct cleaning, atex explosive environment cleaning, clinical waste removal, commercial window cleaning, crime scene de-contaminations, deep cleaning, hazardous waste removal, among others.

Strategic Aims and the Aquaflow Purchase

The company aims to be the leading specialist cleaning and soft facilities management services business in the UK, delivering class-leading margins and cash conversion.

At the end of October last year, the group purchased for £7.4m, £5m down and the balance upon conditions, a drainage and plumbing services company that is based in London and the Sout-East – called 24hr Aquaflow Services.

Aquaflow is a profitable, cash generative, commercial drainage and plumbing services company that was established over 20 years ago, it focuses on all aspects of blocked drainage, leaking pipework, planned preventative maintenance and reactive callouts.

What I liked particularly is the fact that some 79% of the new company’s business is repeatable, while 43% is planned preventative maintenance, with about 95% of its business coming from facilities management customers, many of whom are not already REACT clients – thereby offering massive cross-selling opportunities.

Last year Aquaflow had a £6.1m revenue, on a 56% margin and reported an EBITDA of £1.2m.

At the time of the acquisition CEO Shaun Doak stated that:

“Over the last 20 years they have established a very strong reputation for consistently delivering high-quality services and solutions greatly valued by customers.

The Acquisition is expected to be immediately earnings enhancing and contribute significantly to the future profitability of the Group.

This is REACT's third acquisition and further demonstrates the Company's stated inorganic growth strategy.

We are excited by the opportunities that lie ahead as we continue to invest in profitable growth and offer our complementary services across the broadening customer base of the enlarged business."

The Equity

There are some 23.64m shares in issue.

The larger holders include Octopus Investments (18.30%), Dowgate Wealth (12.51%), Harwood Capital (10.58%), Canaccord Genuity Wealth (7.58%), Helium Rising Stars (5.56%), and Chmn Mark Braund (1.87%).

What The Brokers Say

After the Aquaflow Services acquisition, analyst Greg Poulton, at Singer Capital Markets, rated the group’s shares as a Buy, while setting a new Target Price of 135p, up from 97p.

His estimates for the year to end-September 2024 were for revenues of £20.7m (£19.6m), with adjusted pre-tax profits of £2.1m (£1.8m), with earnings of 6.6p (7.8p) per share.

For the current year, he looks for £27.9m revenues, £3.2m profits and 9.3p per share in earnings.

Moving into the 2026 year his figures suggest £30.0m revenues, £3.9m profits and 11.3p per share in earnings.

Over at Dowgate Capital, its analysts Mark Howson and Paul Richards raised their Target Price for the group’s shares in their late October Buy note, from 100p to 120p a share.

With fairly similar revenue, profit and earnings estimates, the analysts consider that the acquisition was an attractively profitable and high margin business, in what was a transforming deal.

They now expect more organic and particularly acquisitive growth to come from the enlarged group.

My View

I think that the logic of the Aquaflow acquisition and its earnings-enhancing status has been overlooked by the market.

The REACT Group enjoys a very impressive annual recurring revenue rate of some 87% - and regular readers will know just how much I love to see such high ARR figures.

This group’s shares, which consolidated from its penny share status in March last year, peaked at 98p on Guy Fawkes Day, but have since eased back to 80p before the recent rise to just 84.50p.

That is far too cheap a rating for such a cash-