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Renold saw its order book climb by 36 per cent in the half (16 per cent in constant currencies), but the key trading period is the first three months of 2009, traditionally its peak sales time. Only then will investors find out whether the company has ridden out the storm affecting the engineers.
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While the industrial chain manufacturer maintained a cautiously optimistic outlook for the full-year, chief executive Bob Davies said there had been a "softening in sales in the past three months". However, he expected the fall in steel prices, a key commodity for the company, combined with lower freight and energy costs, to have a positive impact on costs - Renold paid 40 per cent more for steel than in 2007. Falling input prices will take at least six months to work through the supply chain.
Renolds has about three months' visibility on orders for its chain products and around a year for its gears and couplings. Broker Singer Capital Markets forecasts full-year pre-tax profit of £9.4m and has revised its EPS forecast down by 9 per cent to 8.4p (7.5p in 2008).
RENOLD (RNO) |
||||
|---|---|---|---|---|
| ORD PRICE: | 40p | MARKET VALUE: | £ 30.8m | |
| TOUCH: | 39-42p | 12-MONTH HIGH: | 113p | LOW: 40p |
| DIVIDEND YIELD: | nil | PE RATIO: | 3 | |
| NET ASSET VALUE:* | 62p | NET DEBT: | 80% | |
| Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 82.1 | 3.0 | 2.0 | nil |
| 2008 | 95.2 | 4.1 | 3.9 | nil |
| % change | +16 | +37 | +95 | - |
*Includes intangible assets of £22.8m, or 30p a share |
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More analysis of company results
Fears over the outlook mean the shares are trading on a forward PE ratio of 6, a 10 per cent discount to the sector. That may seem a bargain, but in the last recession the sector traded as low as 3.6 times cash profits to enterprise value. On this basis, the shares are fairly priced especially given the uncertain outlook.
Last IC view: Good Value, 80p, 27 Jun 2008.
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