What's new:
■ Teaming up with Scienta to potentially create market leader in vacuum service science
■ Cost synergies expected from deal
■ Joint venture and US medical business acquisition could reduce Oxford's lumpy revenue profile
Nanotechnology products manufacturer Oxford Instruments (OXIG) made further inroads in its quest to regain investor confidence by announcing a joint venture designed to create a market leader in highly-specialised vacuum service science.
Shares in the company famous for inventing the superconducting magnets used in MRI scanners tumbled 38 per cent in January after sanctions against Russia caused it to slash full-year profit forecasts. But this latest announcement, coupled with the recent $10.4m (£6.8m) acquisition of a US business that builds, services and leases mobile imaging labs, has driven a steady recovery in sentiment.
The joint venture will see Oxford's loss-making Omicron segment team up with Scienta, the Swedish firm that generated pre-tax profits of about £2.2m on sales of £24.6m in the year to December 2014. Given the fragmented nature of the vacuum surface sciences field, the combined wider product range of the two businesses is expected to transform it into the number one player in electron spectroscopy, scanning probe microscopy and thin film disposition.
By providing a complementary product offering sold to the same customers, and reducing duplicated costs, cost synergies should be generated, too.
JPMorgan Cazenove says…
Buy. We see the deal as a very neat solution to a problem area for the group. Omicron has underperformed expectations, delivered losses and consumed management time. We expect the establishment of the joint venture to solve all of these issues. But while the venture should make a positive contribution this year - and in years to come - our previous expectations of a small profit for Omicron in the year to March 2016 looks too optimistic. We therefore reduce our 2016 financial year cash profit forecasts by 2 per cent to £52.4m - at £61m, our 2017 financial year cash profit forecasts are unchanged. We have, however, updated our cash flow to reflect the cash profile of the transaction, though the impact is small.
N+1 Singer says…
Hold. We do not anticipate making significant changes to our forecasts at this stage, although note the potential for stronger profitability from the joint venture over time, and for exceptional charges to help integrate the operations. This comes shortly after the acquisition of US business Medical Imaging Resources, which we believe will be earnings enhancing by at least a mid-single digit percentage. But until more financial details become available, we maintain a 12 month target price of 765p and forecast adjusted EPS falling 31 per cent to 46.6p in the financial year to March 2015. We expect adjusted EPS to rise to 56p in the 2016 financial year, and then to 66.9p in 2017.
