Ricardo looks good for recovery

Ricardo is firmly embedded in the British engineering tradition and traces its history back to the 1880s. It supplied First World War tanks with more efficient engines and much of its expertise is still in refining existing technologies for car companies via its research and development (R&D) consultancy. The car industry has had a tough time of it over the past year, and Sussex-based Ricardo is no exception. But signs that the rate of decline in car sales may be slowing in the developed world, combined with rapid growth in the developing world, means that there should be long-term value in the company's range of automotive niches.

The tough times have persuaded auto makers either to delay projects or take basic research back in-house. However, before the current crisis, the trend over the past decade had been firmly towards outsourcing research, so it may be that the current reversal will be temporary. Also, outsourcing makes economic sense for large manufacturers. It means less capital tied up in expensive equipment and fewer highly-paid specialists on their payroll. In addition, legislative pressure to come up with more energy-efficient engines with lower emissions should play to Ricardo's basic strengths in the long term.

These include not being overly reliant on any one customer, although passenger cars makers form the single biggest group. It also has significant niches in military transport and motor sport. Ricardo's customers are spread across all markets and geographic areas, all of which have been equally affected by the downturn. There is some hope in the short term, however, as car scrappage schemes in Germany and the US have proved successful in nudging up sales from depressed levels.