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Record order book saves Ricardo's blushes

Despite a somewhat flat financial year, the clampdown on dirty cars bodes well for the engineering consultancy's future.
September 12, 2014

A record £142m order book helped make up for somewhat flat underlying results at engineering consultancy Ricardo (RCDO). Chief executive officer David Shemmans told us that after a challenging period of order delays and a sharp reduction in order intake from one its biggest clients, Jaguar Land Rover, a number of game-changing deals had reinvigorated operations.

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The strong fourth quarter was driven by the Chinese government’s eagerness to develop its automotive industry as well as the global focus on carbon dioxide emissions technology. New environmental legislation will be introduced in the US from 2016, and Ricardo has secured large multi-year contracts with the Detroit Big Three. In fact, the order book does not include roughly £300m worth of new framework agreements that should provide a much needed boost to its sluggish technical consulting division.

This part of the business accounts for three quarters of group revenue. During the year to 30 June, delays due to Chinese bureaucracy and Jaguar Land Rover's decision to downgrade its contract pushed underlying operating profits down by 4 per cent to £17.8m. The performance products division fared better, with profits up nearly a third to £7.9m. An eye-catching deal with McLaren will earn the group about £40m of revenues from 2016 onwards.

Analysts at broker Investec expect a profit of £26.4m in the current financial year, giving EPS of 40.8p (up from 37.9 in 2013-14).

RICARDO (RCDO)
ORD PRICE:635pMARKET VALUE:£332m
TOUCH:632-637p12-MONTH HIGH:800pLOW: 527p
DIVIDEND YIELD:2.4%PE RATIO:17
NET ASSET VALUE:206p*NET CASH:£12.6m

Year to 30 JuneTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201016310.820.110.7
201119715.430.011.5
201219717.629.312.4
201323020.732.514.0
201423623.536.915.2
% change+3+12+14+9

Ex-div: 23 Oct

Payment: 14 Nov

*Includes intangible assets of £41.8m, or 80p a share