Sterling’s devaluation has provided a nice tailwind for British manufacturing, which has seen exports rebound to offset muted domestic conditions.
Take Manchester-based Renold. Ninety per cent of its revenues are derived overseas, with North America (34%), continental Europe (29%) and Asia (28%) being the largest contributors. Overall, the firm is the world’s number-two player (15% market share) in industrial chains (76% of sales) behind leader Tsubakimoto of Japan.
Renold also operates a very profitable torque transmissions unit. Most of its products tend to be niche items, sold across a diverse range of applications – typically within trains, ships, cement factories and steel mills. They have also been fitted on the Oblivion roller coaster at Alton Towers and are used by London Underground.
Encouragingly, Renold is also on a mini recruitment drive to help it meet rising customer demand. Ian Butterworth, the head of manufacturing at Renold’s Rochdale site, said: “We need skilled workers immediately due to the firm doing really well. Our order books are on the rise but we need more operators.”
Renold (LSE: RNO)
This should not come as a surprise. At the last count in July, “order intake had surpassed sales in all three months of the first quarter, while revenues were 12% higher than the comparable period last year”. Both divisions posted double-digit growth, with torque transmissions up 16% and chains 10% ahead. In particular, Australasia, China, and India each saw expansion in excess of 20%.
With regard to the numbers, house broker Singer Capital estimates turnover and adjusted earnings per share (EPS) for the year ending March 2012 to be £207m and 4.1p respectively, rising to £217m and 6.6p in 2012. That puts the shares on undemanding p/e ratios of less than seven. I value the stock on a ten-times EBITA multiple. After adjusting for the net debt of £20m and £43m pension deficit (after tax), that generates an intrinsic worth of 35p a share.
Admittedly, in the event of another slump and/or wild foreign-exchange swings, recent performance would be dented.
All the same, with strong customer relationships and the ability to supply some tried and tested technology, Renold offers good upside with plenty of exposure beyond Britain.
A pre-close trading statement is expected around mid-October. Singer has a price target of 58p.
Rating: SPECULATIVE BUY at 27p (marlet capitalisation £60m)