Clean up with Ricardo

But investors seem skittish about Ricardo maintaining its recent positive momentum based on recent share price weakness, and may have overlooked its growing exposure to new markets similarly backed by legislation. In regards to the former, weekly headlines about the world's biggest car manufacturers outlining early plans to develop cleaner technology in vehicles indicate we're likely to be only at the beginning of a positive earnings cycle. Add to this rising signs that the Chinese government is taking pollution and electric vehicles seriously, and there's a strong case to argue that Ricardo's expertise in these matters will be in hot demand for at least another decade.

Sluggish economic growth shouldn't derail these prospects, either. While the car market is cyclical, legislation means reducing carbon emissions isn't an option for manufacturers, which helps to explain why Ricardo delivered a record order book of £201m in a period when most were sweating over slower growth in emerging regions.

That impressive figure doesn't include the big engine deals in the process of being signed with the likes of McLaren. Ricardo has a strategic relationship with the Formula One race team, supplying about 1,500 engines a year for its road cars. But in the last financial year, its small manufacturing arm behind this work experienced an unusual downturn, as supercar makers entered a transitional phase ahead of new launches.

Fortunately, McLaren and other clients are now gearing up to unveil the next generation of cars, meaning that looks to be just a temporary blip. The fact that Ricardo just doubled its engine-building capacity suggests it's very confident that there's plenty of demand here.

Ricardo's 100-year history in the trade means it's often the first name to be called for these types of projects. In recent years management has taken advantage of its reputation and expertise by applying its skills to different markets, including rail, marine, motorcycles and water preservation.

Last year it snapped up two companies, the largest of which was rail consultancy and assurance business Lloyd's Register Group for an initial consideration of £41m. The acquisition of Lloyd's immediately beefed up Ricardo's presence in an industry buoyed by surging investment in global rail networks. With about 450 extra rail specialists joining after the takeover, the group immediately won some big orders, including a multiyear rail project in Asia.

The other acquisition saw Ricardo buy consultant Cascade for £3.2m. According to management, this deal enabled its energy and environment business to drive private sector and international growth into the water sector. Given that the issue of water preservation is high on the agendas of governments and campaigners across the globe, this move also appears to be a shrewd one.