MIDAS SHARE TIPS UPDATE: Join bargain firm Renold making chains for theme parks at Alton Towers
When you post positive results, but your stock drops three percent as the market rises, you might be forgiven for wondering what you did wrong.
Robert Purcell, CEO of AIM-listed Renold, was baffled by the market’s reaction to his company’s results last week.
“My honest opinion is that our stocks are ridiculously cheap,” Purcell told Midas after publishing stronger-than-expected fourth-quarter earnings.
On the rise: Renold makes the chains for theme park rides at Alton Towers
The chainmaker continues to push its way into new markets, and the only real downside to this week’s statement was that Renold decided not to declare a dividend.
If you’ve never heard of Renold, it’s because his products are the unsung heroes within bigger machines, rather than the standout stars themselves.
British Cycling’s top bikes wouldn’t function as well without Renold Velo chains, while the world’s nuclear reactors also rely on the transmission chain to operate control rod mechanisms.
The company is integrating its recent acquisition, a Spanish industrial chain company known as YUK, which meant it had to take on more debt, but the company is optimistic as YUK is performing above expectations.
Renold is not immune to economic headwinds and rising raw material costs, but its order book is strong and the company believes it has become more flexible, producing locally for its customers to avoid delivery issues, and a major maintenance company, instead of simply relying on heavy-duty customers, has invest in new equipment.
Renold is known to make the chains for theme parks in Alton Towers, and shareholders could be forgiven for feeling like they’ve been on a roller coaster for decades.
Renold’s stock are up 32 percent since January, but at 29 pence they’re a far cry from the 121 pence when Midas tipped the company in 2007.
The company has bitten off more than it could chew in the past, but there’s no evidence it’s currently struggling to assimilate YUK, which is performing above expectations.
Midas verdict: British smaller companies are currently not in favour, but Renold has a strong combination of innovation and manufacturing expertise that should keep its order book strong.
The UK also accounts for just seven per cent of sales, meaning our local trials shouldn’t affect it too much.
Renold’s valuation, six times future earnings, is undemanding, and while economic headwinds can’t be ignored, they shouldn’t blow this rollercoaster off course. To buy.