Small Talk: Get in with the Renold chain gang

Click to follow
The Independent Online

When the market is against you, there isn't much you can do about it. Renold, the engineering group, reported a sparkling set of numbers last week, but the shares promptly tanked, despite analysts having nothing but good things to say about the company.

Renold is approaching the end of the first phase of implementation of a new strategy – aiming to make the company more competitive in the global marketplace. Action has been taken to improve the bottom line, but the challenge now is to grow the top-line revenue while maintaining margin improvement.

The company reported a 22 per cent jump in earnings per share to 3.3p on the back of a 7 per cent jump in revenue to £82.1m. On a constant currency basis, operating profit rose 19 per cent to £5.7m, although like any company doing business in dollars the weak greenback affected the results in sterling.

Renold primarily manufactures industrial chains – which may not sound particularly glamorous, but given the strength of the natural resources and transport industries demand is buoyant.

The bulk of Renold's manufacturing has been moved to lower-cost emerging economies, predominantly Poland and China, and going forward the company expects 60 per cent of its manufacturing to come from these two locations.

The broker Brewin Dolphin expects the company to report 10.6p per share in earnings in 2009 as demand for its products and the continued strategic changes take effect. That puts the stock on a forward multiple of just 8.6 times prospective earnings, a significant discount to the sector.

There seems little wrong with these results – the outlook statement was bullish and analysts believe that the company is now more competitive in its international markets. For those in the know, Renold has a very strong brand name in the industrial chain-buying world, and despite the currency headwind this is an encouraging set of numbers.

Passing under the radar is easily done in this market, but Renold deserves some attention.

Disgrace at Erinaceous

As anyone who has ever watched Property Ladder over the past few years will know, even the most inept amateur property developers has more or less been bailed out by the UK property market. So one has to wonder just how inept the management at Erinaceous has been to make such a mess of it.

This column has covered the tale of woe that is Erinaceous in depth – so we promise this will be the last comment for the foreseeable future. But investors will certainly be feeling bitter, to put it mildly, to read that the former chief executive Neil Bellis and former chief operating officer Lucy Cummings have pocketed £736,000 in severance pay – equal to more than 5.6 per cent of the company's current market capitalisation.

There is nothing investors can really do about the payout to the pair, who are being paid in accordance with the terms of their contracts. Investors backed those contracts, so only have themselves to blame, but here is a radical idea – how about ensuring director contracts include some sort of tie-in to value generation? Since Erinaceous shares peaked at 405p in March 2006, the group has lost 97.3 per cent of its value, and it is little short of a disgrace that the directors who led the company during that period are walking away with anything, never mind £736,000.

Hopefully this will draw a line under what has been a disaster for investors, and the new senior management at Erinaceous has a chance to turn things around. They face a huge task, but one that will be easier now they've moved on. Even if doing so has cost the company an arm and a leg.

Tapping into a need

Pure Water – the answer to drought? That might sound like a silly question. But with Australia and large parts of the southern United States wracked by some of the worst droughts in memory, one company thinks it has the answer.

Pure Water, which is planning a £1.65m fund raising and placing on AIM, claims it has the technology to tap deep underground water reserves in the driest places. It has undertaken two successful drilling projects in New South Wales and by using advanced mapping techniques to find water supplies it has another 20 possible sites in the same area.

Pure Water believes its techniques are more cost-effective and environmentally friendly than desalination. Look out for a float in the first quarter of 2008 with a market capitalisation of about £15m.

Tapping into a need

Pure Water – the answer to drought? That might sound like a silly question. But with Australia and large parts of the southern United States wracked by some of the worst droughts in memory, one company thinks it has the answer.

Pure Water, which is planning a £1.65m fund raising and placing on AIM, claims it has the technology to tap deep underground water reserves in the driest places. It has undertaken two successful drilling projects in New South Wales and by using advanced mapping techniques to find water supplies it has another 20 possible sites in the same area.

Pure Water believes its techniques are more cost-effective and environmentally friendly than desalination. Look out for a float in the first quarter of 2008 with a market capitalisation of about £15m.

Comments