Renold slowly builds value

Shares in chain maker Renold (RNO) were almost worthless at the height of the pandemic, with the company’s market cap slipping to just £9mn in April 2020 as it toiled under heavy debt and pension obligations. 

The Manchester-based business, which has been around since the 1860s, has since made a steady recovery. Revenue in the first half grew by a fifth and its order book rose by 37 per cent to £99mn. 

Chief executive Robert Purcell said the company had coped with “significant inflation and supply chain disruption”, increasing selling prices to offset higher materials, energy, labour and transport costs. Adjusted operating profit rose by more than a third to £9.6mn.

It even splashed out an initial €20mn (£17.5mn) on Industrias YUK, a Spanish manufacturer of conveyor chains. 

This seems like a bit of a gamble. The purchase more than doubled Renold’s net debt to £34mn, from £13.8mn at the end of March. The company thinks it offers useful cross-selling opportunities for its own transmission chains in Spain and Portugal.

Borrowing costs are also on the rise, but climbing interest rates also have a benefit – they helped to increase the value of pension plan assets, cutting the size of its deficit by 30 per cent to £61.3mn. 

Renold shares trade at less than five times house broker Peel Hunt’s forecast earnings of 4.9p a share, which may seem cheap but is probably fair value given the risks faced. If, as ratings agency Moody’s expects, the outlook for global manufacturing is weakening, the company could once again find itself in a tight spot should earnings pull back. Hold.

Last IC View: Hold, 13 Jul 2022