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Ricardo starts its second century with a bang

A big boost from new acquisitions, coupled with impressive organic growth, triggered another stellar performance from engineering consultant Ricardo.
February 26, 2016

Legislation governing issues such as lower carbon emissions, better energy efficiency and the preservation of water resources is effectively manna from heaven for Ricardo (RCDO), one of the world's leading independent advisers to the public and private sectors on such matters. This favourable backdrop helped to spark a 43 per cent surge in underlying pre-tax profit to £14.4m in the six months to December 2015.

IC TIP: Buy at 835p

The two acquisitions completed in the period played a key role in this performance, in addition to a 44 per cent rise in the order book to a record £201m. Consultant Cascade marks Ricardo's entrance into a lucrative market concerned with water resources and environmental management. Meanwhile, the £40.6m takeover of rail specialist Lloyd's Register Rail saw around 450 extra rail specialists join the business, helping Ricardo to win some big orders, including a multiyear rail project in Asia.

Supplementing this big boost from new arrivals was organic growth of 9 per cent. A key driver was the automotive market, where car manufacturers are exploring ways to meet stringent regulations to curb the emission of toxic carbon dioxides from vehicles. The only downside was a 19 per cent decline in underlying operating profit within the group's smaller manufacturing arm. But that reflected a transitional phase, as core clients such as McLaren gear up the launches of their next generation of cars.

Broker Investec Securities forecasts adjusted 2016 EPS of 48.2p, up from 42p in 2015.

RICARDO (RCDO)
ORD PRICE:910pMARKET VALUE:£481m
TOUCH:888.5-915p12-MONTH HIGH:968pLOW: 712p
DIVIDEND YIELD:1.9%PE RATIO:22
NET ASSET VALUE:233p*NET DEBT:26%

Half-year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20141219.014.24.65
201515813.219.25.07
% change+31+47+35+9

Ex-div: 17 Mar

Payment: 7 Apr

*Includes intangible assets of £79.4m, or 150p a share