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Steady progress in mixed trading conditions Revenue was £341.1m, +3%; adjusted operating profit £51.6m, +9%; adjusted PBT £57.5m, +2%; adjusted EPS 63.2p, +2%; DPS 16.8p, no change; and cash of £233.2m compared to £217.8m at year end. Trading: Manufacturing technologies revenue improved by 4% to £322.6m as demand for position measurement and AM products improved, however some gains were offset by weaker demand for industrial metrology. Operating profit for the division increased by 14.6% to £52.8m. Analytical Instruments and medical devices saw revenue decrease by 3% to £18.8m due to lower spectroscopy sales despite growth in neurology products; the division also generated an adjusted operating profit loss of £1.2m compared to a £1.2m profit in H1’24. Regionally, there was growth in the US at 8% yoy and EMEA 5%, while APAC was flat yoy. Margins: There was a 1% increase in the gross margin to 61.5% pre-engineering costs due to favourable variances in currency and component purchase costs, which were offset by continued pricing pressure in APAC. The operating profit margin increased by 90bps to 15.1% from 14.2% – although improved, this is below the through-cycle target of 20%. Adjusted PBT grew 2% in H1, although Q2 was lower than Q1 due to an adverse product mix and a one-off supply chain issue. Balance sheet: Cash conversion exceeded the group’s target of 100% due to lower capex spend. The group remains in a robust net cash position of £233.2m vs £217.8m at June 2023. No change to the H1 dividend of 16.8p. Outlook: Order intake has recently improved, particularly from the Semiconductor manufacturing and consumer electronics end markets (c25% of revenue). FY24/25 guidance is set at revenue of £695m-£735m and adj. PBT of £105m-£135m. FactSet consensus forecasts are for revenue of £719.4m and adjusted PBT of £140.7m; we therefore expect consensus downgrades to adjusted PBT. We place our forecasts and TP under review.
Renishaw plc
We are confident in the medium-term delivery of high-single-digit through-cycle organic revenue growth, coupled with 20%+ margins. The proposition remains compelling, with a unique model, hence our continued Buy recommendation.
Key highlights Q1 2025 Strong start to the year as the group reported revenues of £173.9m (+6% yoy, +4% CCY) and an improved profit performance with an Adjusted PBT of £34m (+22% yoy). Divisionally, we note revenue growth to £167.5m (+7% yoy) in Manufacturing technologies and £6.4m (-16% yoy) in Analytical instruments and medical devices. In Manufacturing technologies there was an improved performance across the Americas and EMEA compared to Q1 2024; however, APAC was lower yoy primarily due to strong sales in consumer electronics in the prior period. Position encoders for the semicon manufacturing market saw strong growth in the quarter and additive manufacturing also performed strongly with a decent order book for FY25, while demand for industrial metrology was lower yoy driven by weakness in APAC. Analytical instruments and medical devices saw revenues reduce -16% yoy due to the phasing of spectroscopy products. The group remains in a robust financial position with £276.1m in net cash and cash equivalent and bank deposits, compared to £217.8m at 30 June 2024. Outlook: Solid start to the year despite mixed trading conditions. Management are cautious on calling the strong growth in encoder products for the semiconductor market as the point of recovery, and remain cautious on the demand outlook for the remainder of FY25 for this end market. However, there a number of growth opportunities, cost management initiatives and productivity improvements that can be achieved and will drive progress towards its margin objectives and help deliver "solid overall revenue growth" in line with boards expectations. Next catalyst: H1 2024/25 will be released on 13 February. As per our forecasts, the shares trade on FY25E PE 21.7x and EV/EBITDA of 13.5x falling to 19.5x PE in FY26E and 12.1x EV/EBITDA.
The long-term valuation creation model underpins the target to deliver high-single-digit through-cycle organic growth, coupled with 20%+ margins. We see the stock rerating as these aspects become better understood.
New KPIs introduced: Renishaw has introduced 4 new KPIs to focus on long-term value creation: organic revenue growth >7%, adjusted operating margins >20%, ROIC >15%, and cash conversion >70%. Based on the group’s track record and the cyclical/volatile markets it operates in, these are through-cycle targets. Applying the average of the last 5 years, both organic revenue growth and adjusted operating margins would miss the new targets. However, with volume recovery, organic investment and targeted pricing actions margins should improve incrementally towards its >20% target. Margins at inflection point: We have conducted sensitivity analysis, testing the organic growth and margin targets against our FY25E forecasts. Our forecasts are prudent versus consensus. However, assuming the new KPIs are achieved in FY25, there is considerable upside to our adjusted estimates: EBIT by >17%, earnings by >15%. Productivity initiatives, scaling new product volumes, improved operating leverage, and recovery in position measurement and semiconductor markets will be the core drivers of margin in the near- and medium-term. Upgrade to BUY: Given Renishaw is positioned early in the cycle, and that strong signs of recovery are emerging with management “expecting to achieve solid revenue growth in the year ahead”, the current valuation does not reflect the positive outlook, in our view. While we cut FY25E and FY26E adjusted EPS by 5% and 3%, respectively, the shares nonetheless trade at discounts of 24% and 22% to the historic 10-year NTM P/E and EV/EBITDA multiples. We view this as a compelling entry point, with both margins and earnings at inflection point. Next catalyst: Q1 trading update 24 October.
We believe the company is well on track to deliver the KPIs of high single-digit revenue growth through the cycle, 20%+ margins (15.7% in 2024), ROIC of 15% (12.3%) and strong cash flow conversion, given the operating profile. Our TP of 5,000p highlights the scope of the opportunity.
The improving core momentum underlines our Buy case and 5,000p TP, set out in our 1 May initiation note ‘Engineering-led premium growth’.
Our opening TP of 5,000p is based on a blend of our conservative base model assumptions at parity with peers and our achievable high-case scenario, which reflects the opportunities from new product revenue streams. We initiate with a Buy recommendation.
Renishaw shares have responded strongly to raised management guidance at the 1H24 results. The group’s end markets increasingly appear to have bottomed with encouraging demand signals in the APAC semiconductor/electronics market potentially positive for Renishaw’s encoder business. The group is also seeing a positive inflection in orders for its capital goods equipment in the Americas and Europe as its new products gain share in these markets. The balance sheet remains in a strong net cash position. We raise our target price to 4700p (from 3900p) but downgrade to HOLD from BUY following a 43% share price increase since we initiated in October 2023. We see 8% upside to our new TP of 4700p.
The latest export data from Japanese machine tool builders paints a bleak picture of the capital goods industry confirming other data points on global manufacturing recession. It certainly corroborates reports that the reopening of China hasn’t rejuvenated its appetite for fixed investments; we estimate that in May 2023 the US$ value of Chinese orders for Japanese machine tools fell by 36% YoY. While China has been the largest market for machine tools for several years, these sharp declines should make comparisons more favourable from next year especially as the US cutting tool orders are bucking the overall trend, growing 15% YoY in the Jan-Apr period, having been up 15% for the whole of 2022. With Europe following the US in introducing its own Chips Act, we still expect above average revenue CAGR in FY22-25, albeit now 6% rather than 8% we had previously expected given the weaker-than-expected demand from China. This reduces our TP by 4% to 4,470p but we maintain our BUY recommendation.
Renishaw’s trading update for the nine months ended 31 March highlights: growth remains subdued, lowering of the mid-point range for FY23 revenue by 3% and PBT by 7%, we expect modest consensus downgrades. Trading 9m revenues grew 6.0% y-o-y to £522.0m, reflecting subdued demand from the semiconductor and electronics markets. The Manufacturing technologies division grew by 6.3% to £496.7m and Analytical instruments and medical devices division grew by 1.2% to £25.3m. 9m adjusted PBT fell 9.8% to £111.8m as Renishaw continues to invest in R&D and infrastructure, while an increase in headcount and labour inflation has resulted in higher operating costs. The balance sheet remains strong with net cash of £227.8m (H1’23 £211.5m). Outlook Management expects current market conditions to continue for the remainder of its financial year (Jun y/e), but it will continue to invest in innovative new products and manufacturing capacity to support growth, whilst managing costs carefully and focusing on productivity. FY23 revenues are expected to be in the range of £680-700m (previously £690-730m – set on 2 February, consensus £698.2m) FY23 adjusted PBT is expected to be in the range £135-150m (previously £140-165m, consensus £148.2m).
We have ceased coverage of Renishaw. Our last published recommendation was Hold and our last published target price was 3,600p.
This note was inspired by Airbus’ analyst meeting yesterday where the CEO bemoaned that productivity was languishing below the peak of 2018, a timely reminder that productivity remains the ultimate driver of economic growth and profitability. Few companies understand this better than Renishaw as it relentlessly pursues innovation and sees opportunity in every crisis. Last month, we increased our revenue CAGR for FY23-25E from -2% to 5% to reflect the positive impact of CHIPS Act. However, we now see CAGR of 8% as other end markets such as Aerospace look to regain past productivity with Renishaw’s precision and additive manufacturing products. If our TP is unchanged at 4,636p, it is only because the peer group has been further derated to 13.5x FY2 EBITDA. We maintain our BUY recommendation.
The interims were broadly as expected and whilst we are tweaking our profit forecasts lower, our view on the stock remains unchanged ahead of the 3Q in May.
We now believe that the strong demand for semiconductor and electronics capital equipment that was expected to reverse post-COVID reopening and the ensuing shift towards services, and away from goods will last longer. Even if shortages turn to gluts, the US CHIPS and Science Act signed into law in August has arguably kicked off a race to build capacity in all the major economies including the EU. We now expect Renishaw’s revenues to show a CAGR of 5% in the FY23-25 period compared with our previous expectation of 2% annual decline. Accordingly, we have also raised our PBT forecasts for FY23 and FY24 by 30% and 24% given the operational leverage. However, the dramatic decline in peer group valuations in the Robotics and Automation sector in the past year has cut our TP from 5,870p to 4,636p. However, given the 23% upside we maintain our BUY recommendation.
1Q was in line with expectations and we are leaving our numbers unchanged at this stage. Whilst the order book is strong, RSW’s exposure to semiconductors and consumer electronics means the outlook is less certain. We reiterate our Hold recommendation and 3,600p target price .
FY22 has been a solid year with record revenues and profits delivered. FY23 has started well, but order intake has started to slow and the outlook understandably reflects general market sentiment becoming more cautious.
Results summary – record results FY22 (Jun y/e) revenues grew 19% y-o-y (H1’22 growth was 27% y-o-y and 9M’22 growth 21%) to £671.1m (management guidance range given on 10 May 2022 was £655m-£675m) with the Manufacturing technologies division +20% to £634.6m and Analytical instruments and medical devices division +4% to £36.5m. Supply chain constraints have been successfully mitigated but an increase in headcount and labour inflation has resulted in higher operating costs; however, despite these headwinds RoS increased 300bps to 24%. FY22 adjusted PBT increased by 37% (H1’22 growth was 94% y-o-y and 9M’22 growth 47%) to £163.7m (guidance range £155m-£170m). EPS increased 41% to 185.5p and a FY22 dividend of 72.6p is a 10% increase y-o-y. The balance sheet remains strong with net cash of £253.2m (H1’22 was £222.0m, FY21 £215.0m). Outlook – growth rates softening in key end markets Management comments that it is mindful of global uncertainties and cost inflation but there is no specific guidance, as we would expect. INVe has 5% revenue growth for FY23E and 8% PBT growth – while good momentum underpins these rates, at present potential increasing macro pressure (already seeing a weakening of its order book) and costs (labour costs will increase by £19m in FY23) may put pressure on consensus profit expectations. Renishaw also mentions that it has agreed a Net Zero commitment, which aims to achieve Net Zero for Scope 1 and 2 emissions by 2028, and no later than 2050 for Scope 3. Investment case Renishaw’s status as a provider of capital equipment – albeit aligned with automation and enhanced precision – exposes it to volatile demand patterns in both traditional and new markets. We regard Renishaw as exceptionally strong in its markets, its patent portfolio, and financially, and all its cyclical exposure should turn positive at some stage. However, valuation multiples, low visibility, and a high fixed cost base balance the positives.
Renishaw’s full year results on 15th September will provide an interesting further gauge on end market demand. As the recent reporting season has shown, most UK Cap Goods companies have yet to see a change in demand despite deterioration in the macroeconomic outlook. However, Renishaw is more expos
Strong growth but PBT range tweaked down; PHe unch The 3Q trading update ahead of the annual investor day and site visit confirms strong growth this year and the revenue guidance range has tightened. Balancing that is a slight lowering of the adjusted PBT range due in large part to investment in headcount. We leave our forecasts, TP and recommendation unchanged. Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com
Through a combination of strong trading updates and industry newsflow precipitating earning upgrades, and weaker share price performance following the failed formal sale process, Renishaw now sits at a more attractive valuation than it has for some time, particularly on a sector relative basis. Whi
Confirming estimate upgrades post-interims Renishaw delivered a strong set of interims on Thursday (3 Feb), with 27% revenue growth and strong margin recovery driving adj. PBT +94%. While impressive, it is a continuation of trends seen during the previous period as demand for semiconductors and electronics has boomed. The outlook is confident, and we are pushing through upgrades of 24% and 20% to FY22E and FY23E, but we still see the investment case revolving around the long-term ownership of the group, and we are leaving our TP at 5,000p and recommendation at Hold. Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com, Afonso.Osorio@peelhunt.com
It is a pity that management continues to ignore its most valuable asset – the share price – to protect a legacy that cannot be defended in the long term. Meanwhile, even a raised dividend cannot stop the cash pile from growing. At least, it was refreshing to learn at yesterday’s interims webcast that investment in organic growth is now picking up after two years of belt tightening. This is unlikely to change the highly cyclical nature of the group’s revenues in the short term. Hence, despite the consensus-beating outlook for FY22, we are still expecting revenues and PBT to decline in FY23. Higher-than-expected cash, however, drives our SOTP valuation up by 4% to 5,870p. We maintain our BUY recommendation.
FY21 results in the range FY21 revenue and adjusted PBT both came in at the higher end of the range after a fairly eventful year for Renishaw. The outlook looks promising, with good demand levels and some internal restructuring that should support margins, but we see no reason to change our forecasts or Hold recommendation at this stage. Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com, Afonso.Osorio@peelhunt.com
Results in line; significant improvements in profitability Revenues increased +11% YoY (+13% at constant currency) to £565.6m (INVe: £566.3m), at the upper end of guidance of £562-567m (set in July). Adjusted PBT increased +146% YoY to £119.7m (INVe £117.6m) versus guidance of £116-121m, driven by the improved cost base resulting from the ‘Fit for the Future’ strategy. Adjusted EPS was 139.4p, vs INVe 126p, and vs 51.0p in FY20. Final dividend declared of 52.0p, making a full year dividend of 66.0p. Geographically, APAC saw good revenue growth throughout the year, where increased investments in the region in the semiconductor and electronics capital equipment markets are driving demand. EMEA and Americas achieved modest revenue growth, with 1H in line with 2H20, but strong growth in 2H21; Aerospace remains a particular challenge. Divisionally, the new Manufacturing Technologies business (formerly “Metrology”) was £526.2m, vs £475.2m last year, driven by strong growth in APAC, a feature across the Group. Analytical Instruments and Medical Devices saw revenue growth of 12% on the year to £39.4m, aided by a good recovery in industrial and academic research budgets. Positive outlook The Group has seen a good start to FY22 with a record order book. Management expect demand from the semiconductor and electronics sectors to remain strong, and continued recovery in machine tool markets. Valuation The shares are trading on an FY22E PE of 31.1x and EV/EBITDA of 17.4x.
Sale process ended; strong trading in 4Q After announcing a formal end to the sale process that was launched back in March we are bringing our target price back to where it was then, at 5,000p. Trading in 4Q, however, has been strong - we’re upgrading our FY21E PBT by 3.4% to £120m - and the outlook remains positive. We think this is reflected in the price, with the shares trading on 38x our revised FY21E EPS. Our recommendation remains Hold. Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com, Jolyon.Wellington@peelhunt.com, Afonso.Osorio@peelhunt.com
Conclusion of its FSP On 2 March, the Board first announced a Formal Sales Process (FSP) and today announces that it has unanimously decided to conclude this process. This is after reviewing a ‘number’ of proposals with the Board unanimously concluding that ‘none would meet the objectives of delivering an outcome that satisfactorily met the interests of all stakeholders’. The FSP would include the sale of Renishaw’s founders’ combined c53% stake. Sir David McMurtry and John Deer have indicated to the Board that they remain committed to Renishaw and have no intention of selling their shares on the market for the foreseeable future. Current trading Strong trading in its final quarter (Jun year-end) prompts renewed FY21 management guidance of revenues between £562m and £567m, and adjusted PBT between £116m and £121m (previous guidance, first set on 26 March, was for revenues of £540-570m and PBT of £105-125m). Renishaw finished its financial year with a record order book, suggesting strong momentum moving into its FY22. Investment case Renishaw’s status as a provider of capital equipment – albeit aligned with automation and enhanced precision – exposes it to volatile demand patterns in both traditional and new markets. Renishaw is exceptionally strong in its markets, its patent portfolio and financially, and all its cyclical exposure should turn positive at some stage. However, high valuation multiples, low visibility and aerospace disruption leave the shares looking vulnerable in our view. Next catalyst: prelims on 30 September 2021.
It would appear, at least judging by recent share price movements, that the offer to sell the company over four months ago has failed to attract an intense bidding activity. Notwithstanding the Board's desire for the "right new owner", this could change as the industrial landscape is evolving and converging as competitors in metrology acquire digital capabilities. This includes Hexagon's agreed purchase of Infor's Enterprise Asset Management (EAM) business for $2.75bn announced yesterday. Surely, it is not too controversial to suggest a reverse scenario - EAM companies such as SAP acquiring physical capabilities. Our SOTP model now yields a TP of 5,649p (5,395p) based on a 4% upgrade in our FY21E revenue estimate. We move our recommendation from SELL to BUY.
While we continue to believe that ‘right’ deal will likely not mean the best price given the cultural fit obligation, Renishaw's recent strong update, continued evidence of a strong market backdrop and the high operational gearing that a gross margin of over 65% and recent restructuring allow means
Trading well ahead Renishaw has issued an unscheduled intra-day trading update materially increasing the guidance range it gave at the interims in February. This means >20% upgrades to our FY21E forecasts. From a valuation perspective we are now balancing the upgrade and the premium rating in the context of the sale process. It reaffirms its status as a prized asset, but this is balanced by the rating and the possible strings that may be attached to any deal. In accordance with the upgrade we move our TP to 5,800p, which equates to a PE of 37x our revised FY22E EPS, and our recommendation remains Hold. Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com, Jolyon.Wellington@peelhunt.com, Afonso.Osorio@peelhunt.com
Renishaw continues to intrigue. The interims confirmed trends suggested by the Q1 performance – that the cost reductions enacted through the Fit for Future strategy have been more comprehensive than we suspected management would be prepared to implement and on a scale comparable to the financial cr
Strong interims; two-digit % consensus upgrades likely After cost-saving initiatives and a strong recovery in AsiaPac Renishaw has posted a strong set of interims and is guiding to FY21 adj. PBT of £85m - £105m vs consensus of £84m. We bring our numbers up into the range (from £48m), raise our target price to 5,000p and reiterate our Hold recommendation. Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com, Jolyon.Wellington@peelhunt.com, Afonso.Osorio@peelhunt.com
Renishaw’s interims are broadly in-line with our forecasts, highlighting a recovery in revenue growth, strong improvements in profitability, and a reinstated dividend. FY21 revenue guidance is in-line with our forecasts, but PBT is expected to be 2% ahead of our forecast at the lower end of its expected range. Interims results – highlighting recovery as expected Revenues declined by -2% y-o-y (-2% at constant currency) to £255.1m (Q1: -6%). Metrology revenue was £235.6m, down -2% y-o-y (Q1: -8%). Geographically, APAC saw y-o-y growth on strong demand for encoder product lines, driven by a recovery in the semiconductor market. EMEA revenue reduced due to ongoing uncertainty caused by the pandemic and weaker demand, particularly in aerospace. Healthcare revenue was £19.5m, up 10% y-o-y (Q1, +16%), with increased demand for both spectroscopy and neurological product lines. Adjusted PBT of £43.4m, compared to £14.3m the previous year, benefitted from cost reduction actions (‘Fit for the Future’ strategy). Adjusted EPS is 49.2p (compared to 15.1p last year). The dividend has been reinstated with an interim of 14.0p announced (0p last year) and cash is strong at £186.6m (vs £120.4m at its year-end in June 2020). Outlook – improving but still mixed Management remains confident in the group’s prospects and is working to mitigate the potential impacts of Brexit, such as expanding sites in Ireland and Germany; however, initially there have been some border delays for UK shipments into the EU since 1 Jan 2021. Despite uncertainties, it expects FY21 revenues of £515-545m (INVe £540.8m) and adjusted PBT of £85-105m (INVe £83.3m). Investment case – valuation is still demanding Renishaw’s status as a provider of capital equipment – albeit aligned with automation and enhanced precision – exposes it to volatile demand patterns in both traditional and new markets. Renishaw is exceptionally strong in its markets, its patent portfolio and financially, and all its cyclical exposure should turn positive at some stage. However, high valuation multiples, low visibility and aerospace disruption leave the shares looking vulnerable to a de-rating in our view. On our forecasts, the shares are trading on a FY21E PE of 63.1x and EV/EBITDA of 34.8x, falling to 43.6x and 26.5x respectively in FY22E.
Summary Q1 trading update. In the first 3 months of FY21 (Jun YE) revenue was £116.9m, down 6% y-o-y (from £124.6m). Metrology revenue was £110.2m, down 8% y-o-y. Geographically, APAC saw y-o-y growth on increased demand for optical and laser encoder product lines, driven by a recovery in the semiconductor market. EMEA revenue reduced due to the ongoing uncertainty caused by the pandemic and weaker demand, particularly in the aerospace and automotive sectors. Healthcare revenue was £5.7m, up 16% y-o-y, with increased demand for both spectroscopy and neurological product lines. Adjusted PBT was £18.3m, up from £4.3m last year. Adjusted PBT benefitted from cost cutting actions and also included global job retention grant income totalling £2.3m. The Group balance sheet remains strong, with net cash and bank deposit balances of £152.6m as at 30 September 2020, up £32.2m from FY20. Outlook The Group is in a strong financial position and it continues to invest in the development of new products and applications, along with targeted investment in production, and sales and marketing facilities globally. End markets are expected to continue to be challenging, especially aerospace and automotive sectors. The Board remain confident in the prospects of the Group. Investment case and valuation The Q1 performance is broadly in-line with our expectations. Renishaw’s status as a provider of capital equipment – albeit aligned with automation and enhanced precision – exposes it to volatile demand patterns in both traditional and new markets. Renishaw is exceptionally strong in its markets, its patent portfolio and financially, and cycles will turn positive at some stage. However valuation, low visibility and aerospace disruption leave the shares looking vulnerable, in our view. On our forecasts, the shares trade on a FY21E PE of 61.4x and EV/EBITDA of 33.3x.
Summary and outlook Renishaw’s prelim results highlight, understandably, a difficult year to June. Revenues are in-line while PBT is slightly shy of guidance given less than 1 month ago. It appears that consensus went slightly higher than guidance with an EPS expectation of 57.1p compared to the result of 51.0p and INVe of 49.4p. Management has taken the appropriate actions to reduce costs in light of Covid-19 and no final dividend has been declared – which may disappoint some given the large net cash position. The outlook statement is brief, given its limited visibility, but highlights good growth opportunities and new products. We note the group’s high exposure to aerospace, but this may be offset by semi-con and an expected automotive recovery. Financials Full year revenues declined by 11% (-13% at constant currency) to £510.2m (guidance c.£510m, given on 17 July 2020). Adjusted PBT declined 53% to £48.6m (guidance c.£50m). EPS decreased by 57% to 51.0p (vs INVe 49.4p and consensus of 57.1p). The interim dividend was cancelled and no final has been declared. Net cash is £120.4m providing a strong balance sheet and compares to £106.8m last year. Investment case and valuation Renishaw’s status as a provider of capital equipment – albeit aligned with automation and enhanced precision – exposes it to volatile demand patterns in both traditional and new markets. Renishaw is exceptionally strong in its markets, its patent portfolio and financially, and cycles will turn positive at some stage. However, valuation, low visibility and Covid-19 disruption leave the shares looking vulnerable, in our view. We also note the strength of the share price going into these results. On our forecasts, the shares trade on a FY21E PE of 57.3x and EV/EBITDA of 31.7x which looks extremely expensive compared to both listed and competitive peers. Management is hosting a results webcast at 11am today.
Current trading Revenues for the 9M to March 2020 fell 9.6% to £389.9m and adjusted PBT 60.1% to £31.8m. Trading has been challenging through the year but in particular in Renishaw’s Q3 with the outbreak of Covid-19 in China and the subsequent reaction. Cash preservation actions, such as staff reductions, capex cuts and dividend cancellation, are in place and its net cash balance is £94.0m leaving the Group in a strong financial position. Outlook China is now reopen for Renishaw, but the impact of Covid-19 in Europe and the Americas will start to hit. Based on recent order trends and customer feedback, management expects FY20 revenues to be in the range of £490m-505m and adjusted PBT of £45-55m (previous guidance, provided at the end of Jan, was for revenues of £530-560m and adjusted PBT of £50-70m). We downgraded FY20E PBT by 38% in April to £42m, noting that Renishaw’s Q4 (calendar Q2) will be extremely tough. Next catalyst: The CMD, due today, has been postponed, with no new date provided. FY20 results are now expected to be announced in mid-August, compared to a previously published date of 3rd August Our view and valuation Trading is mixed, as expected, and guidance has been cut. It is encouraging that guidance is just above our estimate and consensus for adjusted PBT, but this is flattered to some degree by FX hedging. We note the volatility to guidance and high exposure to automotive and aerospace which may fare worse than expectations in its Q4 period. Extreme valuation, low visibility and Covid-19 disruption leave the shares, after a good run, looking vulnerable in our view. Renishaw’s status as a provider of capital equipment – albeit aligned with automation and enhanced precision – exposes it to volatile demand patterns in both traditional and new markets. Headcount has risen, as the company recruits to enable future growth, and margins have been squeezed. However, Renishaw is exceptionally strong in its markets, its patent portfolio, and financially, and cycles will turn positive at some stage. The shares are trading on a FY20E PE of 76.5x and EV/EBITDA of 33.8x, falling to 40.9x and 22.4x respectively in FY21E.
Interim results Revenues fell 13% to £259.4m (1H’19 - £296.7m) driven by a decline in demand across its end markets, with Asia leading the declines at -20% organic. Factors such as a drop in consumer electronics (vs tough comparators) and US/China trade tensions have hit demand for its products. PBT decreased 76% to £14.3m (£59.6m), highlighting the extremely high operational gearing in this business. EPS fell 78% to 15.1p (69.3p) and DPS was held at 14.0p. Net cash balances of £71.3m were lower than the £106.8m a year ago, but remain at healthy levels. Outlook Looking ahead, there are positive indications of recovery in the semiconductor market but management expects the rest of its financial year (June y/e) to remain difficult. Management expects FY20 revenues to be in the range of £530-560m (INVe £534m) and adjusted PBT of £50-70m (INVe £68m) underpinned by some market recovery, reduced operating costs and favourable FX hedging. We note that there is a wide range of consensus expectations for FY20. China represents nearly 20% of group revenues and we believe that the Coronavirus may cause headwinds in its Q3 financial period (Jan-Mar). The next catalyst is an Investor Day which will be held on 12th May 2020. Our view and valuation This is a broadly in-line set of interim results which was not a surprise given the commentary at the Q1’20 trading update in mid-October 2019. The outlook discusses some positives, but we believe headwinds still prevail. Investment case: Renishaw’s status as a provider of capital equipment – albeit aligned with automation and enhanced precision – exposes it to volatile demand patterns in both traditional and new markets. Headcount has risen, as the company recruits to enable future growth, and margins have been squeezed. Renishaw is exceptionally strong in its markets, its patent portfolio and financially, and cycles will turn positive at some stage. However valuation, low visibility and high China exposure leave the shares looking vulnerable, in our view. The shares are trading on an FY20E PE of 52x and EV/EBITDA of 27x, falling to 34x and 20x in FY21E respectively.
Results. Renishaw’s FY19 results slightly undershot the bottom end of its guidance ranges (£574m revenue v £580-600m range, £103.9m adjusted PBT v £105-120m), although we have amended the latter to £105.8m, excluding asset impairment and GMP equalisation charges. The group has very little visibility, but it maintains a dialogue with potential customers. Guidance was first introduced in January, at a level below consensus, and it was subsequently reduced twice as customers’ indicated purchases failed to materialise. We have cut our EPS estimates by 9% and 10% for FY20E and FY21E. Markets. Renishaw has blamed a lack of follow-on orders from Far Eastern consumer electronics customers for much of the downturn in business, and has noted the strength of activity in its additive manufacturing, automation (flexible gauging) and fixturing product lines in Metrology, along with the spectroscopy and medical dental products in Healthcare. However, we note that Japanese machine tool orders are down by approximately 30% (in Yen) in the calendar year to date, and that this is likely to have affected Renishaw’s related products. Strengths. Renishaw is relentlessly focused on developing technologies with the potential for strong adoption in manufacturing and medical markets (its substantial in-house production brings first-hand insight into possible areas for growth), and protecting and monetising the resulting IP. Its pricing power supports gross margins at the top end of the range among UK industrials. The company is also strongly cash generative and has over £100m of net cash. Our view. Renishaw has a long-term strategy that has been very successful so far, and we agree that its sales drivers are robust on that timescale. On a one-year view, however, we consider the shares vulnerable to de-rating. Sell.
Results Today’s full year results have missed both consensus and the bottom end of the guidance range, with £574m revenue (FY18 £611m, guidance £580-600m, our estimate £574m) and £103.9m adjusted PBT (FY18 £145.1m, guidance £105-120m, our estimate £107m), in spite of Healthcare doing better. The softness continues to be in Far Eastern consumer electronics, compounded by less buoyant conditions in Europe. Although there was growth outside Asia, and some product lines (additive manufacturing and automation) performed very strongly, the overall quantum was a little poorer than we had forecast. Outlook There is no guidance for FY19, which is not unusual for this point in the financial year, apart from an assumption that conditions will remain challenging. We expect consensus estimates to come down today, perhaps by 5-10%, but we believe there is an appetite for the shares at these lower levels and there are no concerns about the financial strength of the group (£107m net cash). Renishaw will continue to invest and will look forward to better growth when its markets improve cyclically; Renishaw has limited visibility and is quite capable of surprising on the upside as well as the reverse. Our estimates, currently as shown below, are placed under review, along with our valuation. We expect to stay negative on the stock on valuation grounds.
Renishaw has released FY19 results below revised guidance with industry challenges to remain through FY20. Stay Neutral. Revenue £574m (-6% YoY, Bloomberg consensus =: £587m), Adjusted PBT £103.9m (-28% YoY, cons.: £111m) , vs recently revised guidance of £580-600m revenue and £105-120m adjusted PBT. Adjusted EPS 119.9p (cons.: 129p), DPS 60p (cons.: 55.7p).
Renishaw has reported strong growth for H1 18, with sales up 20% pre FX and adjusted PBT up 73% to £62.3m. The group has given FY18 guidance for adjusted PBT of £127-147m. We believe consensus is c.£137m, in line with the mid-point of this guidance, and hence do not expect significant changes to market expectations. We also anticipate maintaining our own forecast of £144.2m, which is c.5% above consensus but still within guidance. This reflects the positive industrial backdrop as evidenced by manufacturing PMIs and industrial production growth, which should help drive Renishaw’s performance in H2 18. However the H1 results are a little lighter than we had expected, with Q2 adjusted PBT of £26.5m vs the £35.8m achieved in Q1. This leaves more to do in H2 than we had assumed, and an unhelpful recent progression, along with yesterday’s news that the CEO role is being handed over from the founder Sir David McMurtry. Together these appear slightly unsettling and could impact the share price and high valuation multiples.
Next week Renishaw will report H1 18 results which we expect to show strong growth, consistent with rising global sector indicators such as manufacturing PMIs, industrial production growth and machine tool orders. We have belatedly refreshed our forecasts to reflect the positive momentum which has continued through FY17 into FY18, and moved estimates c.6% above consensus expectations. We have also increased our target price to 5600p, although retain our Hold recommendation given the shares’ strong run.
FY17 results came in slightly ahead of the top of the range guidance provided by the company in the May 17 update; “We are now anticipating revenue to be in the range of £520m to £535m and profit before tax to be in the range of £99m to £108m”.
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Renishaw has reported very strong results for Q3 17. Underlying sales growth accelerated to 13.5% for the first 9 months of the year from 12% in H1, while Q3 PBT of £33.6m is almost equal to the £35.7m reported for the H1. Net cash has also risen sharply. Management has raised guidance for FY17, from a PBT range of £85-95m to a new range of £99-108m. This represents a 9% increase in terms of mid-point, or a 7% increase vs. consensus PBT of c.£97m. The shares trade on the highest rating of the large UK capital goods groups at c.19.2x EV/EBITDA for calendar 2017 and 29.9x P/E, however Renishaw is also reporting some of the strongest growth in the sector, with rising momentum.
Renishaw reported strong underlying sales growth of 12% for H1 17, with margins largely unchanged as investment continues to support long term growth. Improving industrial indicators suggest strong sales growth should continue or even accelerate over the coming months. However accompanying cost growth remains difficult to forecast, reflecting the group’s long-term approach to developing the business. Management has provided guidance for FY17 sales of £500-530m and PBT of £85-105m, with the mid-point of £95m only just above previous market expectations. We have increased our PBT forecasts by 3% to £95.9m for FY17 and by 7% for FY18 and FY19. We have also upgraded our recommendation to Hold with a 2923p target price (from 2242p), reflecting the more supportive backdrop.
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Renishaw has reported strong sales growth of 21% for H1 17, with margins largely unchanged as investment continues to support the long term. Management has given guidance of £85-105m for FY17 PBT, with the mid-point of £95m just above consensus of c.£92.7m. We view this as a reassuring update, but not one that is likely to drive significant changes to market expectations.
Renishaw has developed world-leading market positions built on patented technology, and mediumterm growth should be sustainable as the global manufacturing industry looks to upgrade into state-of-the-art manufacturing systems with additive manufacturing, robotics, etc. likely to be strong growth drivers.
We have updated our forecasts for Renishaw ahead of the FY16 results tomorrow, as per our indications at the time of the Q3 update. Looking ahead, our FY17 PBT forecast of £85.0m assumes modest improvement in underlying growth and an increased sales contribution from irregular orders, supplemented by a material FX tailwind. We now expect a return to more positive news flow and momentum from Renishaw, and have increased our target price from 1905p to 2026p driven by higher sector multiples. However we believe this improved outlook is already more than reflected in the share price. Consequently we retain our Sell recommendation.
Renishaw has reported Q3 sales and PBT which are in line with its reduced guidance from March, although down materially vs last year due to the non-repeat of large irregular orders. Underlying sales growth is reported to be 5%, unchanged from the interims. Management has reiterated its range of expectations for the full year for sales of £420- 440m and PBT of £67-83m. We view the results to date as likely to emerge towards the bottom of this range, as already reflected in most market forecasts.
The group have revised guidance with the mid-point of revenue range down 5% and mid-point PBT range down 21%.
Renishaw has reported weaker numbers than we expected for H1, with a decline in PBT from Q1 to Q2, but reaffirmed guidance for sales of £440-465m and PBT of £85-105m (N+1Se £92.2m). On the one hand investors can take comfort from management’s confidence that underlying growth will improve during H2, and the stock build presumably indicates visibility of orders with deliveries expected to be made during H2. On the other hand, H1 saw declining performance from Q1 to Q2 and H1 PBT of just £26.1m leaves a lot to do to reach guidance – with £66.1m needed in H2 to deliver our forecasts. We consider forecast risk has increased, which is likely to weigh on the share price.
Renishaw’s Q1 trading update confirmed an expected decline in sales vs. a tough comparative, as large irregular orders from FY15 did not repeat. Meanwhile costs increased due to investment, reducing PBT by 23% to £16.3m. Guidance was reduced by c.4% for FY16 sales, although PBT guidance was maintained at £85-105m. Our forecast of £92.2m PBT is unchanged. However we think risk remains to the downside due to weakening industrial indicators, allied with Renishaw’s low visibility and high operational gearing. Accordingly we have reduced the premium to sector multiples in our valuation and cut our target price. We reiterate our Sell recommendation.
Renishaw has reported very strong FY15 results as expected, with PBT more than doubling to £144m. Management has given new guidance for FY16 – PBT of £85-105m – which is broadly in line with our forecast of £91.5m. However we have some concern that this is predicated on stretching sales growth of c.16%, in a relatively slow growth industrial environment.
Renishaw has developed world-leading market positions built on patented technology, and superior medium-term growth should be sustainable as the global manufacturing industry looks to upgrade into state-of-the-art manufacturing systems.
