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Ricardo goes green

A focus on green projects helps with a return to profitability and dividend increase
Ricardo goes green


  • 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

TOUCH:419-423p12-MONTH HIGH:580pLOW: 320p
Year to 30 JuneTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
% change-0.1--+10
Ex-div:03 Nov   
Payment:25 Nov   
*Includes intangible assets of £119m, or 191p a share