A refinancing, an improving order book and a (well-planned) change in management are all potential triggers of interest in a stock.
Throw in a share price that is half its record high, reached in 2018, and no higher than in 2000 and more boxes are ticked. Add a little magic dust from exposure to hydrogen fuel cells and renewable energy – as a bonus, not the core investment thesis – and Ricardo merits yet further consideration.
In all honesty there is a risk that this column has dithered a bit and missed some early gains, since it has been researching the stock since last November’s £29.3m capital raising. That deal, priced at 333p, bolstered the balance sheet, although last autumn’s full-year results showed that interest cover was more than four times anyway, excluding write-downs and restructuring costs.
Last month’s first-half results showed net debt of £78m, including lease and pension liabilities. That was less than half shareholders’ funds, so gearing is low.
Nevertheless, the raising of extra funds provided Ricardo with plenty of working capital with which to operate as it sought to secure some potentially substantial contracts. This has already brought benefits in the form of a three-year, $89m (£64m) contract to retrofit critical systems in the US Army’s fleet of “mobility multipurpose wheeled vehicles”.
Those machines are due to stay in service until 2050, so this initial project potentially opens the door to more contract wins. That in turn would validate Ricardo’s strategy of positioning itself as an engineer and consultancy within a range of technical industries and not just the manufacture of automobiles.