- Energy and environmental division the standout performer
- Group returns to profit after a tough pandemic
Ricardo (RCDO) has reported mixed full-year results, but the engineering and environmental consultancy group is moving in the right direction as it returned to profitability and announced a 10 per cent increase in dividend pay-outs for the year.
Flat revenues are set against positive underlying metrics. Adjusted profit before tax rose 15 per cent to £18m, meeting analyst expectations, while underlying EPS increased by 5 per cent to 22.4p. A 13 per cent sales decrease in automotive and industrial (the largest division by revenue), shows that the segment struggled during the pandemic, with a slowdown in automobile purchases and pronounced client uncertainty – order intake in the division fell 20 per cent. By contrast, there were modest profit increases across all other segments.
Management is keen to promote the group’s green credentials; it may seem odd for a business heavily involved in engines, transmissions, and defence to describe itself as a ‘partner of choice’ for net zero client projects but the approach is bearing fruit. The energy and environment segment’s results for the year cemented its position as a key part of the business. There was record underlying operating profit growth of 35 per cent in the division, with revenues increasing by 12 per cent to reach £57.1m.
Despite the green hype, the group still depends for a substantial amount of its income on traditional streams. The automobile and industrial and performance products segments, which help clients with matters from engines to transmissions set-up, posted 51 per cent of total group revenues. Diversification seems to be allowing the group to achieve a balancing act.
Graham Ritchie will become the new chief executive on 1 October, and it appears he will inherit a steadying ship. Net debt fell 36 per cent to £46.9m, after a November share placing. Consensus estimates compiled by FactSet suggest a forward earnings per share of 32p for 2022. Ricardo is also trading on a forward price/earnings multiple of 12.5 times, which is slightly below its five-year average of 12.9 times. A dividend increase to 6.86p per share should cheer investors. Buy.
Last IC view: Buy, 382p, 2 Sept 2021
RICARDO (RCDO) | ||||
ORD PRICE: | 420p | MARKET VALUE: | £ 261m | |
TOUCH: | 419-423p | 12-MONTH HIGH: | 580p | LOW: 320p |
DIVIDEND YIELD: | 1.6% | PE RATIO: | 145 | |
NET ASSET VALUE: | 293p* | NET DEBT: | 39% |
Year to 30 June | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
2017 | 352 | 32.2 | 46.8 | 19.3 |
2018 | 379 | 27.0 | 33.0 | 20.5 |
2019 | 384 | 26.5 | 37.1 | 21.3 |
2020 | 352 | -5.30 | -12.2 | 6.24 |
2021 | 352 | 3.90 | 2.90 | 6.86 |
% change | -0.1 | - | - | +10 |
Ex-div: | 03 Nov | |||
Payment: | 25 Nov | |||
*Includes intangible assets of £119m, or 191p a share |