My first choice is Renold (RNO). I've pasted this from my current post on the RNO board so there is little new. Some credit for this selection goes to Cockney Rebel too as he has highlighted the impressive record of Hanover Investments with recovery stocks. The excerpt below is taken from the Peel Hunt note after the interims and although a PE of 12 (based on a Brewin Dolphin forecast) and nearer 14 from KBCPH themselves is not going to make this a raging buy, I do think that the note implies there is a lot of mileage in this one. At a price currently of 112.5p it may be stretching it a little to expect over £2 within the year but I think we shall see further upgrades, especially if margins do increase as suggested.
"These interim results make for positive reading, particularly with
regards EBIT margins. The results were ahead of our expectations
and we have upgraded our FY-07 & FY-08 forecasts accordingly.
Management changes and the sale of the automotive business have
both been a positive for the group and there has been a notable
improvement in the attitude towards the pace of change. The
opportunities for share price growth on a 2-year view make Renold
one of the more attractive opportunities in the sector.
The shares are trading on a FY-08 multiple of 15.7x (the current
year rating has been discounted), however this is still being eclipsed by
the potential for upside given the margin progression. CEO & New
Chairman have also both bought stock since the Interim results.
The outlook for the remainder of the year looks positive and outside of
the US$ and steel price movements, the group largely has its destiny in
its own hands. Underlying markets are generally favourable and the
uplift in EBIT margin will be predominantly driven by the actions of the
management. Going forward, the goal of achieving a 10% margin will
drive the group’s valuation considerably higher than the current
share price."
