When we highlighted Renold's (RNO) investment case back in February, we ventured that a "significant rerating" was on the cards if the small-cap engineer could "realise its ambitious target of achieving mid-teen operating margins by 2020". These latest full-year figures show the group picking up trading momentum through the second half, although investors will note a 120 basis point reduction in the adjusted operating margin to 7.9 per cent. This reflects a 3.6 per cent contraction in underlying revenue, but it also represents a modest improvement since the half year, so management remains confident that the target rate is deliverable, even if the time frame is certainly open to question.
The underlying break-even revenue (adjusted for acquisitions) increased by £0.2m to £12.5m per month, due in part to increased expenditure on marketing and commercial support. Nevertheless, the group believes that a reduction in average employee numbers and improving sales per employee show that the restructuring measures are starting to have a beneficial impact on unit profitability, a process that should gain impetus from additional self-help initiatives. Net debt as a multiple of cash profit has actually fallen to 0.8 from 1.1 a year earlier, although borrowings look slightly alarming as a percentage of shareholder funds due to the hefty pension deficit.
Net exceptional charges of £1.7m were £0.5m lower than the prior year, but they still left a hefty dent at the operating level. The group continues to incur significant costs through the 2020 strategic plan, including those for the consolidation of UK Couplings manufacturing, a relocation of the European distribution hub, and initial moves to relocate its Chinese chain manufacturing facility to a new purpose built facility. The group also incurred costs linked to the integration of last year's German Tooth Chain acquisition, which is trading well in advance of original expectations.
N+1 Singer gives adjusted pre-tax profit of £14.4m for the March 2018 year end, leading to EPS of 5.1p, against £13m and 4.6p in 2017.
| RENOLD (RNO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 58p | MARKET VALUE: | £131m | |
| TOUCH: | 58-60p | 12-MONTH HIGH: | 65p | LOW: 33.5p |
| DIVIDEND YIELD: | nil | PE RATIO: | 28 | |
| NET ASSET VALUE: | 2.3p* | NET DEBT: | 223% | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 190 | -11.9 | -5.4 | nil |
| 2014 | 184 | -5.9 | -4.9 | nil |
| 2015 | 181 | 7.7 | 2.5 | nil |
| 2016 | 165 | 7.4 | 2.4 | nil |
| 2017 | 183 | 6.7 | 2.1 | nil |
| % change | +11 | -9 | -13 | - |
Ex-div:- Payment:- *Includes intangible assets of £36m, or 16p a share | ||||
