Chains and Technology with Renold and Cohort

Renold (LON:RNO) – Record 2024 Profits Leading To Further Global Growth And First Dividend Payment For 19 Years

Based in Wythenshawe, Manchester, this £125m capitalised group is the world’s second largest industrial chain maker, with a 10% market share.

With over 150 years of history since Hans Renold invented the chain, today the group is selling to over 100 countries globally.

Internationally it serves the agriculture, forestry and fishing, construction and machinery, energy, environmental, food and drink, manufactured products, material handling, mining and quarrying, and transportation industries.

For manufacturers Renold is a premium supplier of high specification, sustainable, Industrial Chain and Torque Transmission product that facilitate others to achieve operational needs more reliably and with lower total cost of ownership, its products whilst critical are a small part of the total cost.

I consider that its shares are substantially undervalued at the current 57p.

Yesterday’s announcement of the group’s record results for the year to end March 2024 showed that despite a slight fallback in sales, down 2.3% to £241.4m (£247.1m) its adjusted pre-tax profits were up an impressive 18.8% at £22.1m (£18.6m), with earnings 20.0% better at 7.8p (6.5p) per share.

Not only were those a good set of figures but the company also declared its first dividend since 2005 – 0.5p per share.

Furthermore, although the company continues its selective growth by acquisition, the net debt has actually fallen £4.9m to £24.9m.

The £120m capitalised group has also been investing more capital into improving its efficiency, productivity and capability at its manufacturing locations.

It has started this current year from a positive position with good momentum and confidence in the capabilities and fundamentals of the markets that the group serves.

Yesterday morning I chatted for a while with CEO Robert Purcell, who sounded extremely positive about the group and its medium-term prospects.

“I am pleased that the Group continued to perform strongly throughout the year reflecting the hard work, strategically, commercially and operationally, that has been undertaken over recent years by our employees across the world.

The business is now at an inflection point where we are starting to see the compounding impact of the many recent exciting initiatives as they come to fruition.

We have a very clear strategy and are executing it diligently.

Our continuous improvement initiatives are building an increasingly efficient, productive and resilient business and are providing an ever-improving platform to support our commercial initiatives.”

Analyst David Buxton at Cavendish Capital Markets is very bullish about the group’s prospects too – upping his Price Objective from 65p to 75p a share.

I think that is too conservative.

His estimates for the current year are for £243.2m sales, £22.8m profits, earnings of 7.1p and a similar dividend payment of 0.5p per share.

For the year to end March 2026 he sees £248.5m revenues, £23.8m profits, 7.3p earnings and another 0.5p dividend per share.

In my view these shares at 57p are too cheap, especially considering its global market position, its record results, its return to paying dividends for the first time in 19 years and that they are trading on only a price-to-earnings ratio of 7.8 times.

An excellent investment purchase now for growth over the next few years.

(Profile 04.06.19 @ 30p set a Target Price of 60p*)

(Profile 08.11.23 @ 29p set a Target Price of 36p*)

Cohort (LON:CHRT) – Record Revenues And Order Book

On the back of yesterday’s announcement of record results this technology group’s shares rose nearly 6% to 874.38p before some profit-taking saw them closing at 850p.

Chairman Nick Prest stated that:

“We are reporting another strong performance for Cohort with improved revenue, profit and net funds, and one that has exceeded expectations.

Our order book surpassed £500m for the first time and provides a solid foundation for the future.

Our order book not only grew in value, but its longevity further increased, providing visibility out to 2037.

We have good prospects to secure further long-term orders for our naval systems and support work.

The order book underpins more than £184m (2023: £140m), representing over 90% of 2024/25 revenue expectations.  

Following order wins since the start of the financial year of over £70m, that cover now stands at over 95%.

These order wins include over £35m from Portugal.

We continue to expect another year of good growth in trading performance in 2024/25, enhanced by the addition of ITS.

Given planned capital expenditure and expansion in working capital to support our record order book, net funds are likely to decrease.

We are optimistic that the Group will make significant further progress in 2025/26 and beyond, based on current orders for long-term delivery, our continued investment in the businesses and our pipeline of opportunities.”

Employing over 1,300 staff, this Reading-based group has six innovative, agile and responsive businesses based in the UK, Germany and Portugal, providing a wide range of services and products for domestic and export customers in the defence and related markets.

The group continues to see good demand for its products and services from both its domestic customers, especially the UK, and from export customers. 

The geopolitical tensions driving increased investment in defence have remained unrelenting during the year, with conflicts in the Ukraine coupled with tensions in the Asia-Pacific region leading to increased spending internationally.

Analysts Mike Jeremy and Andy Edmond at Equity Development have raised their ‘fair value’ of 910p on the group’s shares, previously 725p, which still looks too low to me.

Their estimates for the current year to end April 2025 are for group revenues to rise to £220.0m (£202.5m), with adjusted pre-tax profits of £22.1m (£19.8m), earnings of 41.8p (42.7p) and an increased dividend of 15.5p (14.8p) per share.

For the 2026 year they go for £240.0m sales, £25.0m profits, 47.4p of earnings and 16.3p of dividend per share.

The shares at 850p look to be an excellent purchase, especially considering the wide breadth of this group’s high technology products being sold into global growth markets.

(Profile 06.08.19 @ 446p set a Target Price of 607p*)

(Asterisks * denote that Target Prices have been achieved since Profile publication)