Renishaw (LON:RSW), the Gloucestershire-based engineering group, has certainly been hogging the limelight this year. Not only has it posted staggering profits in its latest interim results and been promoted to the FTSE 100 index, its founders, Sir David McMurtry and John Deer, have announced that they are selling their joint 53% controlling stake in the firm.
With so much activity, it should come as no surprise that shares spiked too. On 2 March they shot up around 20% to 69.00, although they are back at 57.00 which is where they have been for the last six months. But with so much change afoot in the Renishaw camp, we decided to take a look at a few fundamentals that might be attractive to a potential buyer.
Renishaw is a global high-precision metrology and healthcare technology group. Founded in 1973, it is now considered to be one of the world’s leading engineering and scientific technology companies with 79 offices in 37 countries. It is well-known for its culture of innovation. Deer and McMurtry have a deep-seated belief that success comes from patented, innovative products and processes and high-quality manufacturing (including 3D printing) while also having the ability to provide local customer support throughout its markets in APAC, EMEA and the US.
Renishaw has invested significantly in infrastructure
In recent years, Renishaw has invested significantly in its infrastructure both in manufacturing capacity and sales support, devising what they call a ‘Fit for the Future’ strategy. Last year they invested £28.4 million and in 2019, £19.6 million. Capital expenditure has been low this half year at £4.8 million, but there are plans for further investment in the second half of this year, including the final stage payment of a new distribution facility in South Korea. Meanwhile, the group has cut headcount to 4,300 as of end of 2020, down from 4,800 at end of 2019.
Going forward, the Renishaw strategy is to focus on a reduced number of larger businesses with higher growth opportunities. For example, the firm is focusing more on multi-laser systems within the additive manufacturing product line and directing their sales effort towards high-potential customers.
Judging by the 2021 interim results, it looks as if the investment is paying off. Group revenue for the first half of this financial year was down 2% from last year at just over £255 million. However, there was a £3.8 million improvement in gross margin, and adjusted profit before tax was £43.4 million, compared to £14.3 million last year – a 17% and 6% return on revenue respectively. Renishaw has significant business in the APAC region and it reported stronger earnings in this region compared to the EMEA region.
It has been good news for Renishaw shareholders too. The share price has doubled in the last year and the Board is reinstating the interim dividend of 14p per share which is to be paid on 6 April 2021. The EPS on an adjusted basis is 49.3p up from 15.1p last year.
Renishaw has a unique culture and a range of products that will only increase in demand. While its octogenarian founders might be selling up – and they are specific about who should buy their stake – it looks to be in good shape for its new owner. Whoever that may be.