Midas: Renold in shape to boost margins

By Joanne Hart for The Mail on Sunday
Updated: 05:24 EDT, 15 June 2007

Renold is an old-fashioned company. It is based in Manchester, has been around for 128 years and it makes things. The company invented the bicycle chain in Victorian times, but now it focuses largely on industrial chains.

The group is known for quality, so customers tend to be those who need top-notch goods. Big Ben, Alton Towers and Cadbury Schweppes are just some of its best-known clientele.

Despite its heritage, Renold hit a sticky patch early in the decade. It bought businesses unnecessarily and suffered when material costs soared.

But the past couple of years have seen changes. Bob Davies was brought in as chief executive in 2004 and began slowly bringing Renold back to life.

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An investment firm called Hanover Investors amassed a 15% stake last September and founding partner Matthew Peacock installed himself as chairman. Hanover is an activist investor, which means it takes stakes in companiesand tries to make them better. Non-performing, non-core businesses have been sold in recent months and Renold is shifting 40 per cent of its manufacturing capacity to countries with lower labour costs.

This migration is expected to boost margins from six per cent to a forecast ten per cent over time. The lower cost base should also boost growth prospects.

The company has a ten per cent share of the global industrial chain market. It is number one in Europe, number two in America and number two worldwide. But it is way down the line in fast-growing, emerging economies. Till now, its costs have has been too high for it to compete in these regions. Now it hopes to be able to do so.

•• Midas verdict: Renold shares are 131p, having risen from 1121/ 2p since the start of the year. But Davies is ambitious, Peacock is known for his turnround abilities and the company is keen to deliver double-digit sales growth. Buy and hold.

Allergy Therapeutics is another company with a long history, tracing its origins back to before the Second World War. The group makes products designed to cure and prevent allergies.

Unlike many biotech companies, AT, which floated in 2004, has treatments in circulation so it already generates profits. It is in the advanced stages of launching a radical hay fever treatment, designed for people who suffer for months at a time.

AT's Pollinex Quattro Ragweed injection could provide a remedy. At present, most injection courses must begin before the hay fever season and involve up to 50 treatments. Ragweed involves only four treatments and can start once the season has begun. It has had successful trials in Germany while the US is expected to decide by the end of the year whether to approve it.

Hopes are running high and the consequences for AT could be dramatic. The global hay fever market is worth £6 billion a year and 33m injections are administered in the US alone.

Midas verdict: AT's share price, 1111/2p, has been held back by concerns over a loan the company is arranging and worries that the American trial may be delayed.

Reassurance should prove forthcoming on both counts in the next couple of months. One broker has a target price of 215p on this stock. While biotech shares are not for the nervous, this has more ballast than most. Buy.