Renold Share Discussion Threads

[kevph] 17/4/2023 08:59

The funds in the pension scheme earn more interest, closing the deficit.

[kevph] 17/4/2023 08:57

Exactly :)

[spooky] 17/4/2023 08:55

Higher interest rates, positive impact on the pension fund deficit.

[retsius] 17/4/2023 08:52

Kevph

Pardon my ignorance but how will higher interest rates benefit the company?

R.

[kevph] 17/4/2023 08:17

Agree. The pension deficit has long dragged this down. The business is flying and higher interest rates will be a massive tailwind. Surely has to re rate at some point.

[chrisb1103] 17/4/2023 07:41

Trading ahead of expectations AGAIN - every statement is positive and debt down too - surely the miserly rating here has to change!?

[this_is_me] 17/4/2023 07:41

Doing even better than expected. The recent increase in turnover and margin should greatly increase cash flow in 2023/2024

[tole] 17/4/2023 07:04

As a result of the stronger sales, the impact of the YUK acquisition, benefits of cost reduction and efficiency programmes, and the successful implementation of inflation cost recovery programmes, the Board now expects underlying trading profit and margin for FY23 to be materially ahead of the previous upwardly revised market expectations(1) .

[bertiebingo] 27/2/2023 08:07

Yep, sorry my mistake

[wigwammer] 27/2/2023 06:03

He hasn't missed the pension payment, bertiebingo... the £19.3m op cash flow is AFTER a £4.8m cash contribution to the pension scheme. See note 17 of the accounts and the associated cash flow statement.

[bertiebingo] 26/2/2023 09:53

In the case of a takeover, do you know if the pension fund liability has to be paid down before minorities receive offer proceeds ? I worked for a midsize asset management firm that was bought by a US firm. As a shareholder I got some of the small pickings after the pension fund hole was paid down and pref shareholders then paid.

[bertiebingo] 26/2/2023 09:49

I was looking at FCF generation and it seems you are missing the pension payments £5-6m.

[thirty fifty twenty] 20/2/2023 10:53

hi all...

for me RNO is a very likely take over candidate.
i think any bid wold be at >40p+
and thus even if it happens on the last day of my 3 year time horizon, it will yield to me my portfolio target of 15% per annum.

my reasoning...
I think the stock market has valued RNO 'reasonably correctly',
is has moderate debt and a low share rating and thus despite being no 2 in an industry ripe for consolidation does not have the currency to do so.
secondly, the pension is a small theoretical risk. i trust the actuarially profession and calculations but thus by definition of the long term agreement the company will always have to 'overfund' to support the most conservative sceario. in reality this 'overfunding' will return to the company but only when the pension scheme winds down and thus that return is vaued very lowly by the market.

lets take these 2 risks if exactly the same business was part of a bigger business.
1 - those same profits £30m fcst ebitda profits (less the agreed £6m to pension) would be valued at 10 times in a multinational engineering business, and there could even be a premium rating as there was a chance for the number 2 player to consolidate a key industry as global manufacturing on-shores.

2 - firstly the 6m agreed is less material to a multinational thus it carries less risk, and secondly the longevity of a stable multi nationals is seen to be 'forever' as it is diversified and can continually re-invent itself to be around decades ahead. thus any 'over cautious' funding to the PF required by the conservative actuarial calculations is not 'wasted' CASH but just a long term savings plan.

thus to me the bid premium for RNO would be much higher than the average 35% typically seen in the market. indeed - smaller cap UK bids this last 18mths have averaged 50% premiums.

the other side is that if RNO can get some momentum then the returns as a solo business will be greater.

so an investor and risk/reward is see this as win/win
bid scenario is 15% per annum over 3 years (maybe earlier),
RNO pulls it off sees 20% share price growth compounding over 5 years,
my downside is that the RNO make a mess,
and i see this as quite low risk given the skill they have demonstrated to restructure and grow through the pandemic and pre.

All IMHO, DYOR + BoL
RO is in my top5 hldgs

[pireric] 19/2/2023 11:40

Agreed, and you'd certainly hope so re: the investments generating net value for shareholders. Just pointing out that you may not actually see that in the numbers though; in FY24, with more neutral working capital movements, Finncap have FCF of only around £2m on my estimates

Eric

[wigwammer] 19/2/2023 11:13

Ok. But 1) the FY22 FC figures do not contain any material overall WC movements... the £9m swing in 2023 is not an ongoing cost, they are simply using cash to generate an asset, it will normalise.... 2) the interest charge has risen because of the debt taken on to buy YUK - but presumably over the medium term there will be a larger commensurate positive free cash contribution from the acquisition... 3) it appears the core business is making decent underlying progress in terms of sales and order book relative to last year, which bodes well for the medium term...... so 2023 may be impacted, but over the medium term they look well set to build on last years numbers.

[pireric] 18/2/2023 20:56

For what it's worth, Finncap are forecasting materially negative free cash flow for the fiscal year to March 2023, with £9m on working capital consumption, a bump up to £3.5m of cash interest, £3.8m of cash tax and £8.8m of capex all driving factors

Like for like versus +£8.5m of FCF last year, I reckon their FY23 forecast is close to -£6m

Eric

[wigwammer] 18/2/2023 18:27

Fair point pireric... 6.8x 2022a, and we can expect better this year judging by positive interim surprise.... It's cheap. No illusions.

[pireric] 18/2/2023 13:34

Proper free cash flow calculation should be

£19.3m Op cash flow
+ 0.2 disposals of PPE
- 4.1 acquisition of PPE
- 1.2 acquisition of intangibles
- 4.2 lease repayments
- 1.5 finance costs

= £8.5m

Eric

[wigwammer] 18/2/2023 13:27

Last year RNO generated £19.3m of operating cash flow, net of tax and net of a £4.8m pension charge. It spent around £6m on capex, and £2m interest, leaving net free cash flow at £11.3m or a valuation multiple of 5.1x. Where's the illusion?

[wigwammer] 18/2/2023 13:12

With respect, that is one of the most amateur pieces of research I have ever seen. Of course the pension benefits are in large part paid by selling the pension assets. What else do they think the assets are there for?... the point is the liabilities also fall by a commensurate amount ... To repeat - a pension deficit is not the same as debt and should not be simply lumped into an EV calculation.... "Those annual figures also showed scheme assets of £150m delivering member benefits of £11m, of which £1m had to be raised by selling investments. The concern now is how the same benefits of £11m will be supported, given November’s interims disclosed the market value of the scheme’s assets had slid to £119m. Extra cash flow could have to be taken to fund greater contributions to prevent further assets being sold to pay the pensions."

[wigwammer] 08/2/2023 10:43

The pension deficit is not the same as debt. Far longer term, cheaper, and the conditions attached are far more flexible, given the trustees typically recognise the value to the scheme of keeping the business a going concern. I suspect there is substantial opportunity for gains by recognising the consensus tendency to lump the deficit into an enterprise value calculation however.

[this_is_me] 08/2/2023 09:24

Where did you get that figure for pension liability and how up to date is it?

At the last triennial pension valuation the technical provisions deficit of the UK scheme, which is how the trustees and regulator view the scheme, was only GBP9.1m.

It is a lot more complicated than that, of course, since eg. the company has overseas pension schemes in different legal systems.

[74tom] 08/2/2023 09:05

Re. the P/E multiple here, it's rather irrelevant when a company has a pension liability that is almost equal to the current market cap (£61.1m) + net debt of £34m as per the interims.

The effective enterprise value is therefore £63m + £61m + £34m = £158m, so it's trading at about 5.3x adjusted EBITDA. They paid 7.6x adjusted EBITDA for YUK, so yes it's trading at a discount to that, but that makes sense given the pension cost drag.

Out of interest I just looked at BAE Systems defined benefit pension financials & they have a surplus of £1.5b, with scheme investments comfortably covering liabilities. RNO always look to have had a significant deficit, and once in that position it's clearly very difficult (and expensive) to rectify.

[prokartace] 08/2/2023 08:50

deanowls, I believe the pensions deficit is under control and declining fast. The fact that interest rates have risen will have a benecificiary effect on the fund.