Questor share tip: Summer orders keep Ricardo motoring

The British engineer has maintained a record order book with business wins over the summer months, says Questor

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Ricardo
647p+14.5p
Questor says HOLD

RICARDO [LON:RCDO], the British engineering company that designs and builds engines for supercars and Formula 1, said yesterday that winning new contracts over the summer months gave it confidence in the year ahead.

Dave Shemmans, chief executive, said: “The strong order intake in the final quarter of the last financial year has continued in the summer months and I am particularly pleased with the continued growth in new business from Asia.”

The company takes the technological developments from its Formula 1 engine designs and uses them to reduce emissions from existing commercial car engine designs. Chinese cities choking under a cloud of pollution are very keen on accessing Ricardo’s wealth of engine knowledge.

The engineer was updating on trading from July 1 to October 29 and said one of the new orders was a large commercial vehicle project for a new customer in Asia. This contract kept the order book at £142m, which was flat on the level at the end of June.

Questor likes the fact that Ricardo operates in high-end engineering design, a market with barriers to entry that fast-growing Asian engineers have trouble overcoming.

The engineering group’s orders are about 50pc domestic, with the remainder split almost evenly between the US, Germany and Asia. This plugs the group into a stable UK, recovering US and fast-growing Asian markets.

During the period ended October, the company also announced a small acquisition of motorcycle design business Vepro. The balance sheet remains robust, with Ricardo doubling net cash to £12.6m at the end of June, from £6.1m at the same stage last year.

The dividend is forecast to increase 6.5pc to 16.3p and market consensus is for pre-tax profits of £26.2m, on revenue of £252m, giving earnings per share of 40.6p to the end of June 2015. The shares have risen 30pc since we said buy (498.75p, September 10), and the outlook is still good. Hold.