The next time a high-end sports car overtakes you on the motorway or you watch a Formula One race, remember that you will probably have just seen Ricardo’s products in action.
From the transmission on the Bugatti Veyron, the world’s fastest road car, to F1 engines, Ricardo is among a small group of niche engineers that can produce the type of precision gizmos needed in the world of high-performance vehicles.
This only scratches the surface of the industries the 101-year-old company now plays in, having first made its mark manufacturing the engines for First World War tanks.
Under Dave Shemmans, its chief executive, Ricardo operates across a bewildering range of sectors and through a series of recent acquisitions has become a leading consultant on water and energy management, as well as railways with the purchase of Lloyd’s Register Rail last year.
The expansion strategy has been borne out by results, with the company yesterday posting a 29 per cent rise in revenues to £332 million, while underlying pre-tax profits were up 41 per cent at £37.7 million.
Looking forward, the like-for-like order book stands at £231 million, compared with £140 million at the end of June last year, pointing to a strong inflow of new business.
Although the acquisitions have seen Ricardo take on debt, at £34.4 million, this is less than one year’s earnings before interest, tax, depreciation and amortisation, meaning not only is it easily serviceable, but the company has considerable headroom to fund additional purchases should the right deal come its way.
Ricardo offers investors a healthy income with this year’s dividend up 9 per cent to 18.1p a share, a yield of a little more than 2 per cent with expectations that this will continue to rise. There is every reason to expect that Ricardo’s earnings will continue to grow at a fair clip. Take for instance its new antiroll system that is expected to be fitted to the ever popular Humvee, which could bring in more than $1 billion if the more optimistic forecasts are to be believed.
The only cloud on the horizon is the outlook for its largest customers, the big automotive companies. Any sustained downturn could hit the business, though its diversification drive should limit the impact.
MY ADVICE Buy
WHY A well-diversified company with a growing pipeline of new business, this looks like a good bet for the future
Informa
They may not be glamorous but industry conferences remain real money-spinners in the right hands. Informa’s Dubai-hosted Arab Health conference pulls in more money than any other event in the company’s roster, and its World of Concrete and Vitafoods Europe events are steady performers.
Informa’s move to expand its business with the £1.2 billion takeover of Penton, a US rival, funded by a £715 million rights issue, highlights the potential profits to be made. The business services company will gain a further 30 exhibitions from the deal, along with more than 20 B2B digital subscription services and more than 100 mixed print and digital specialist information products.
The execution risks associated with the deal look relatively low, while the chance to expand its footprint across the US, which will now account for close to half the company’s revenues from just over 40 per cent, is attractive given the relative strength of the dollar.
Investors appeared to approve of transaction — Informa shares rose by nearly 5 per cent to 727½p — but analysts wanted to know more about Penton before granting their full blessing.
MY ADVICE Hold
WHY Deal looks attractive, but investors will want more time to assess merits
Next
As a long-time advocate of Brexit, Lord Wolfson of Aspley Guise can hardly complain about the effect that the post-referendum slide in sterling is set to have on the retailer’s costs and, in fairness to the Next boss, he was not complaining about it yesterday.
Although the high street clothing chain remains insulated against the fall in the pound this year, next year’s sourcing costs are expected to take about a 9 per cent hit, although the company said it believed that it would be able to manage this to below 5 per cent.
All of which is to say that when Next said in March that it was facing a challenging year it was not being overly negative: as a company that never likes to surprise the City, yesterday’s first-half fall in profits, down 1.5 per cent to £342 million, had been well signposted.
One of the best managed businesses in its sector, Next has done much to ameliorate pain for investors this year and is on course with plans to return nearly £450 million to shareholders by the close of this year.
However, while in terms of yield there is little complain about, the expense of the exercise is raising eyebrows with net debt expected to exceed £800 million by the end of 2017, leading to concerns about the longer-term health of the business.
At present there is little reason to fret and, with sales remaining strong, there is little reason to head for the exit. So long as costs remain under control and debt does not grow too fast this remains one of the best retailers to own.
MY ADVICE Hold
WHY Business is strong but long-term outlook uncertain
And finally . . .
If there is one inexhaustible growth market, rubbish must be it. We are all consuming more and discarding more. So it seems an opportune moment for Biffa to come to market. In its latest financial year it reported revenues of £928 million, while underlying operating profits were £62.5 million. First-quarter revenues are up 9.2 per cent, while profits rose 49 per cent. With compound annual growth in the UK waste management market forecast at 5 per cent, this could be one bet on garbage that a lot of investors will be eager to take.
harry.wilson@thetimes.co.uk
