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(Sharecast News) - In his 'Inside the City' column for the Sunday Times, John Collingridge wrote about engineering giant Renishaw, starting with its humble beginnings in Sir David McMurtry's garage in the 1970s, where he invented a tool to measure fuel pipes in the Concorde's jet engines, while working at Rolls-Royce.
In recent times, however, things have not been so simple for the Gloucestershire-based firm, which Collingridge said was "deeply exposed" to the peaks and troughs of the global economic cycle.
It issued a warning last March that a slowdown in Asia markets, as a result of Donald Trump's agenda of punitive tariffs on China, was hurting demand for its encoders, which are used by consumer electronics manufacturers to ensure precision on the production line.
Weaker smartphone demand was also hitting Renishaw, and as a result its sales were down in the Asia-Pacific geography - its biggest market - by a sizeable 17% in the year ended June.
Another two profit warnings have come since that first one, with a statement in October telling shareholders that the bumper order book it had a year ago was not to be this year.
At the same time, McMurtry has recently loosened the reins, stepping back to the position of executive chairman and ushering in Renishaw lifer William Lee as its chief executive.
But Collingridge quipped that the company's ownership structure was still "more akin to a private fiefdom than a FTSE 250 stalwart", given 79-year-old McMurtry and co-founder John Deer still controlled more than half of the company.
Its management worked to keep other investors at arm's length, too, with Collingridge saying McMurtry and Deer were "divisive" directors, given their re-elections were rejected by 22% and 23% of shareholders respectively at last month's meeting.
Still, Renishaw came into the current downturn in a significantly better position than it had in previous cycles, given it has almost £100m on its balance sheet, which should see it through the trough while still investing in innovation and research - although Collingridge noted that "last year's 17% of sales could be a stretch".
The scale of the slowdown had been serious as well, even looking at Renishaw's previous experiences, with profits plunging to £4.3m from £32.6m on the last quarter, while its shares had come down 31% from their high of 5,745p in June last year, to 3,938p at the end of last week, giving the company a value of £2.87bn.
Both BlackRock and JP Morgan had built up small short positions in the firm, too.
"Renishaw is cutting costs, merging factories, but the pace of the sales decline - which accelerated to 19% in the latest quarter after last year's 6% fall in sales - suggests it will have to cut faster and deeper," Collingridge wrote.
"Even if Trump achieves his long-promised trade deal with China, it will take a long time before Renishaw feels any benefit. Avoid."
Over in the Mail on Sunday, Joanne Hart was focusing on RockRose Energy for her 'Midas' column, introducing the company as attempting to be like its namesake plant - an evergreen shrub that grows fast no matter the external climate.
The company was formed in January 2016 - a time when oil prices had tumbled from $110 per barrel to not much more than $30 in 18 months, with many energy companies understandably in a panic.
But Hart said that from the start, founder Andrew Austin positioned RockRose to buy cheap oil and gas assets in the North Sea, pour time and money into them, and reap the rewards as productivity, efficiency and life expectancy improved.
And it was an approach that has been paying off, with the shares currently at 1,735p and set to increase as the business expanded and profits rose, Hart suggested.
She noted how the North Sea oil and gas landscape had changed a lot in recent times, with large US firms turning their attention back to domestic operations, and Japanese conglomerates no longer certain in the UK as a place from which to springboard to Europe.
A number of UK companies, meanwhile, remained burdened by excess debt, with all of that meaning assets were often on the market, and frequently at "bargain basement" prices.
RockRose has completed six transactions since its establishment, with several more said to be in the pipeline - with Joanne Hart saying that just because sellers were keen, it did not mean the assets were unattractive.
Often, she said, they were merely neglected, with plenty of scope for improvement under "more caring owners", such as RockRose.
From a standing start, the firm was now producing more than 20,000 barrels of oil equivalent per day, including gas, and was profitable, with around £220m in free cash which it was apparently looking to use to both reward shareholders, and buy more assets.
Big-name investors were enthused by RockRose's performance, with the shares performing well - although there remained plenty of room to move higher, with the free cash alone worth almost £17 per share, suggesting the company's oil and gas acreage was significantly undervalued.
That, Hart said, was likely to change, with RockRose already proving that it could drive down costs and improve its profitability, as well as having the know-how to extend a newly-acquired asset's life.
The result of that was that fields were expected to produce oil and gas for longer, with the cost of decommissioning them set to fall, with the company's track record set to win over even more investors over time, which would support further share price growth.
And at the same time, general business conditions in the North Sea were on the up, with operational costs heading south while oil prices were a good chunk higher than when RockRose was founded.
Regulatory changes around decommissioning were also changing, with Hart said would reduce those costs for the company as well.
RockRose's board declared an interim dividend of 60p at its half-year, with a final dividend of 25p pencilled in, making for 85p of distributions per share in 2019 and giving the stock a yield of just under 5%.
More payouts were expected next year and further than that, with one-off special dividends also a distinct possibility, while the company was also working to improve its exposure to gas - considered a more environmentally-friendly energy source than oil.
"RockRose has come a long way in a short time and should continue to make progress," Hart wrote.
"Austin is a 27% shareholder too so he is committed to success and keen to triple the size of the business over the next few years.
"At 1,735p, the stock is a buy."
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