Questor: at six times earnings Renold is worth another look for risk-tolerant investors

Operating profits jumped to £16.2m from £5.6m, although on an adjusted basis they rose by 15pc to £16.4m. It is nice to see the gap between stated and adjusted operating income fall to a very low level.

An 8pc increase in the order backlog and a 6pc increase in order intake also bode well for the coming year, especially as new bookings (just) exceeded revenues.

There is also room for further margin improvement. The chain division is still suffering from cost pressures, especially in Germany, and the benefits of a new factory in China and the roll-out of productivity software are yet to fully filter through.

Contract timing issues weighed on profits at the torque transmission arm and management admitted to a deterioration in health and safety performance at its facilities, so there may have to be more investment here.

The pension liability ticked higher to just over £100m and the balance sheet is still far from pristine, with net assets of just £1.7m and net debts of just under £30m.

But the rebound in operating profits means that interest cover is now more than seven times, so the company is under no time pressure from creditors, especially as its amended debt facilities are committed to 2024.

Renold therefore has more financial flexibility than meets the eye and the board may look at select acquisitions, especially as the company’s recent move from the main market to Aim gives the board greater scope for acting quickly if it sees an opportunity.

There is still no dividend but the shares trade on a forward price-to-earnings ratio of barely six at a time when profits are still far from optimal.

That lowly rating will hopefully provide some protection against share price falls should anything go wrong and the potential for gains if earnings continue to gain momentum.

Risk-tolerant investors might like to take another look at Renold.

Questor says: buy

Ticker: RNO

Share price at close: 30p

Pressure Technologies

This column’s speculative look at Pressure Technologies has yet to make any waves but shares in the firm are back to our entry point and there could still be scope for improvement.

Management is in the process of slimming down the company’s range of activities with the aim of leaving two core operations – cylinders and precision machined components – for clients in the oil and gas, defence and industrial gases sectors.£

• Read Questor’s rules of investment before you follow our tips

One unit, Hydratron, has already been sold to help cut debt. Another, the alternative energy operation, is on the block and a sale to Canada’s Creation Capital is tantalisingly within reach.

Late last month Pressure Tech announced that Creation had received sufficient interest in a private placement designed to raise the cash to fund the purchase. Details of the deal will hopefully come through soon, in the next step of Pressure Technologies’ turnaround.

There is still a long way to go as the tiny company – its market value is just £20m – has just racked up three years of losses and the same spell off the dividend list.

But this business has in the past made double-digit operating margins and the shares could look very cheap if earnings even start to move towards those levels. It remains a high-risk punt for patient investors. 

Questor says: hold

Ticker: PRES

Share price at close: 109p

Russ Mould is investment director at AJ Bell, the stockbroker. For the best of the Telegraph's investment analysis, advice and expert opinion, sign up to our weekly newsletter.

• Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am.