Renold (RNO:AIM)

Price: 73.9p

Profit to date: 35.2%

We highlighted industrial chains and specialist torque transmission maker Renold (RNO:AIM) as a great investment opportunity in August 2024.

The company has a clear strategy to deliver shareholder value by consolidating a fragmented global market and driving margin expansion via scale benefits and efficiencies.

We argued growth, quality and value is a rare combination not to be missed.

WHAT HAS HAPPENED SINCE WE SAID BUY?

After noting press speculation, Renold confirmed on 20 May it had received two separate, unsolicited and non-binding all-cash proposals, one at 81p per share from a consortium comprising Buckthorn Partners and One Equity Partners, and one at 77p per share from Webster Industries, which is majority-owned by a fund managed and controlled by Morgenthaler Private equity.

The shares rallied 37% on the day of the announcement to 73.4p, some way shy of the highest offer, and the board said it would provide both parties with access to management and due diligence information.

In accordance with London Stock Exchange rules, the two bidders must announce their intention to make a firm offer or walk away by the close of play on 17 June, and as usual there is no certainty a formal offer will be made or accepted.

WHAT SHOULD INVESTORS DO NOW?

Even after the big jump in the share price, Renold shares still trade on a miserly single-digit PE (price earnings) ratio of eight times.

The business makes a healthy return on capital of 22.5% and has potential to grow to two to three times its current size while increasing operating margins.

Looked at another way, today the business makes four times the annual profit it made a decade ago when the share price was last trading close to 81p.

We would sit tight, let the situation play out and hope a bidding war ensues. 

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