What’s new:
• Strong fourth quarter
• Currency hit
• Results seen in-line
Buying scientific cameras business Andor Technology supercharged shares in Oxford Instruments (OXIG) late last year - just two months after confirming an approach for the scientific cameras business, the high-tech tools company was worth almost 50 per cent more. But the euphoria died down as quickly as it emerged and, while the pick-up in orders flagged during the second quarter continued through the second half, management has admitted again that the strong pound is causing problems.
Both Oxford and Andor export much of what they make - to the Far East and the US, in particular – and in a very brief update prior to the full-year results (due on 10 June), Oxford acknowledged that the strength of sterling against its main trading currencies had offset all the benefit of a good last quarter. That’s why numbers for the year to 31 March will be no better than the year before. Yet, while Oxford makes no mention of it this time, a previous update in February warned that “underperformance” at the Omicron business in Germany continued to hold back group performance. Thankfully, the integration of Andor is going to plan and will have helped these figures.
Investec Securities says…
Add. Andor’s advanced camera and microscopy capabilities make it an excellent fit, increasing Oxford’s presence in life sciences and enhancing earnings and growth potential. We expect full-year operating profits to be broadly flat and, while trading conditions are starting to improve, the benefits are currently disguised by the impact of lumpy contracts, a rising tax rate and currency headwind. However, Oxford has an impressive technology portfolio and excellent growth prospects. Our cash profits-based valuation of 1,500p now justifies a step up from ‘hold’ to ‘add’, even while we await clearer evidence of sustained recovery in Oxford’s markets and a re-basing of earnings expectations.
Numis Securities says…
Add. We remain positive on Oxford and believe share price weakness presents an opportunity to access a business with structural demand for its products and good aftermarket content. Additionally, new products, technology upgrades and market share gains should help expand operating margins and drive strong earnings momentum. We expect adjusted pre-tax profit of £47.3m and EPS of 65.2p in 2014 versus £47m and 66.4p last year. A 16 per cent increase in forecast profit in 2015, however, leaves the shares trading on 18 times 2015's annualised earnings estimate - a deserved premium to that of peers.
