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Renold progress derailed

Shares in the supplier of industrial chains and power transmission products continue to tumble as self-help measures fail to limit the impact of weak industrial markets
February 10, 2016

Turbulent industrial markets are taking their toll on Renold (RNO). The supplier of industrial chains and power transmission products warned that underlying sales were likely to fall about 10 per cent, triggering an expected £2m decline in adjusted operating profit.

IC TIP: Hold at 31p

Fortunately, self-help measures helped to ease what could have been an even bigger blow. Efficiency measures are ensuring that the larger chain unit delivers stable adjusted operating profit, despite divisional sales tumbling 8 per cent. Unfortunately, similar efforts haven't been as successful in curbing the losses experienced by the smaller torque transmission arm.

Management pledged to do its best to protect the business from current market volatility. But, despite its best efforts, disgruntled investors sent the group's shares down 27 per cent. Perhaps the biggest concern was the downturn in North American markets. Together with weakness in other regions, this tricky backdrop means sales and orders look poised to continue falling.

Broker Numis responded to this latest update by slashing its adjusted EPS forecast for the year to March 2016 by 27 per cent to 4.2p. Analyst David Larkam says he still has faith in management's strategy to deliver higher margins, but warns that end-market weakness means it will be a bumpier and longer journey than previously expected.