Questor: this Aim stock offers growth, dividends – and a way to avoid inheritance tax

Results earlier this week for the year ending September confirm the original attractions.

This is a cash-generative, low-debt business that has evolved away from traditional construction into highly specialised engineering services. Its lengthy contracts make earnings highly visible. Margins are healthy and rising, and the order book is growing.

More than three quarters of revenue arise from the engineering support operations, where customers tend to be operators of nationally critical energy or transport assets and include the Nuclear Decommissioning Authority and Network Rail.

While this might limit margin growth overall, it gives security.

The technical nature of much of Renew’s engineering, and the highly regulated fields in which it operates, mean barriers to competitor entry are high.

Renew divisions are responsible for cleaning nuclear waste at Sellafield, for example, as well as maintaining distribution networks for other forms of energy including gas. The company is growing its specialisms and access to new contracts through acquisitions.

In February it spent £235,000 buying a specialist nuclear decommissioning business; in October it bought for £7m Giffen Holdings, a provider of signals and power systems for overground railways and the London Tube.

Revenue for this main part of the business was £436m, with underlying growth for the year of 3pc.

The second, smaller arm of Renew is a specialist builder providing ultra high-spec property services. These are mainly residential, involving, for instance, the creation of luxurious basements for London townhouses.

They also include civic projects such as building Damien Hirst’s Newport Street Gallery in south London and maintenance work on the Palace of Westminster.

The residential work is so specialist and so upmarket it is “untouched” by Brexit, tax changes and other drags on the upper echelons of the housing market, Renew says.

Revenue for this division rose from £79.5m to £90m. This holding sits within Questor’s Income Portfolio not so much for its yield today (a modest 2.5pc) but because it offers growth and dividend growth.

As regular readers of this Friday page will recall, the project is to build a sustainable portfolio delivering 5pc income. More than half of the £500,000 set aside for this purpose has now been invested in a range of shares, corporate bonds, permanent interest bearing shares and quoted funds.

Some £20,000 (4pc) of the portfolio will be invested in Renew.

Questor says: buy

Ticker: RNWH

Aim shares and inheritance tax

While pension assets can be passed on free of inheritance tax at death, any holdings inside an Isa, or any other directly owned holdings, will form part of your estate and thus attract IHT (except when bequeathed between spouses, of course).

This is a distinct disadvantage to Isa holdings, and is one reason why many savers now spend down Isa capital ahead of using pension assets.

An extra attraction of many Aim-listed stocks is that they are IHT-exempt. Isa money invested in these shares can thus escape death duties. Such eligible shares are likely to include Renew.

Aim-listed shares qualify for exemption from IHT providing they meet the broad rules of not dealing in land or other investments. The reason one cannot say for certain that Renew will be IHT-exempt is that all businesses are assessed for eligibility at the time of the shareholder’s death.

Richard Power of Octopus Investments, a specialist Aim investor, cites several firms where property-related profits in certain years would have limited the exemption, had shareholders died in that period.

While there can be no guarantees for the future, Renew’s current business operations appear to meet HMRC’s criteria. 

Questor archive: telegraph.co.uk/questor

Contact us: questor@telegraph.co.uk

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