Interactive Investor

Renishaw's pleasant surprise

23rd July 2014 12:39

Lee Wild from interactive investor

Renishaw, the publicity-shy precision engineer, has developed a habit of surprising the market, often because it's so difficult to predict demand from the big Asian electronics manufacturers. Latest full-year results demonstrate the point perfectly - blitzing City forecasts propelled the share price up a staggering 17%.

Indeed, few in the Square Mile saw this coming. Record annual revenue of £355.5 million, up 2% on last year, beat Investec Securities' forecast by a whopping £13.5 million, most of which dropped through to the bottom line. By the broker's adjusted calculation (not too dissimilar to the company's own), underlying pre-tax profit came in at £71.9 million, down 11% on 2013, but almost £11 million more than estimates. Adjusted earnings per share of 82.7p trashed forecasts, too.

Record quarterly sales of £107 million in the final three months of the year made the difference. Renishaw had a poor first half and an unpromising third-quarter update in May had set off a slump in the share price which ended up at a one-year low yesterday - they were over 2,200p in March.

But the core metrology division has been busy filling orders for its 3D metal additive manufacturing products, and for its measuring devices and encoders. New products, like the SPRINT high-speed scanning system for machine tools sold well, too.

Smooth out the numbers to account for a series of big but unpredictable orders from the Asian consumer-electronics industry in recent years, and underlying revenue grew 8% last year. At constant currency, the Far East grew 11%, the Americas 8%, Europe 4% and the much smaller UK business 15%. Revenue in China fell sharply, but was more than offset by gains in the US - Renishaw's biggest customer - Germany and Japan.

As a major exporter, sterling had a big impact on these figures. At last year's exchange rates revenue would have been over £11 million higher this year and profit almost £7 million. Yet management is bullish on prospects. "The new financial year has started well and…directors remain confident in the prospects for the group," said chairman and chief executive David McMurtry.

Renewed demand is pushing Renishaw shares back towards the 200-day moving average just above 1,800p. Overseas peers have re-rated, too, and Renishaw's numbers are clearly an excuse to follow suit. Yet visibility remains poor, and using Investec’s forecasts (currently under review) for profit of £73 million in 2015 and adjusted earnings per share of 84.3p, Renishaw trades on 20 times forward earnings. That's not untypical for this company, and the current share price could end up looking like good value if this turns out to be more than a one-off.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.