Companies selling high-tech electronic and electrical equipment to the Chinese last year had shareholders raising a glass of something fizzy as the new year arrived. Most did well in 2012, largely down to a flood of orders from China during the second half, which offset an otherwise drab performance elsewhere. Powerful structural drivers are in play here, and for some further riches lie ahead in 2013.
Oxford Instruments (OXIG) is benefiting from a number of big trends – mankind's uncontrollable desire to miniaturise everything from speakers to fuel cells is one. That's driving demand for nanotechnology tools and Oxford's are among the best. Governments are still happy to bankroll research programmes and funding levels for nano studies are growing by up to 20 per cent a year. Pumping cash into its university system make India one to watch – look out for further progress there in 2013. Tighter regulations mean handheld material analysers are selling well, too, and will remains a source of growth.
Reluctantly, we downgraded Halma (HLMA) – a highly successful buy tip – following a good run. It's a great defensive stock and will benefit from Chinese health and safety legislation in the years ahead, but short-term valuation concerns limit our enthusiasm. However, greater factory automation, especially in Asia, means precision instruments maker Spectris (SXS) still gets our backing. A shaky first half on European concerns and fears that the Chinese would put the brake on spending proved unfounded. In fact, sales there jumped 15 per cent in the third quarter and opening a Chinese office in September will help this year.
It's a similar story at Renishaw (RSW), whose supersensitive measuring devices are coveted by manufacturers in the Far East. Record sales there meant its share price doubled in 2012, though a repeat looks improbable. True, there's obvious potential for impressive top-line growth, but as UBS points out, Renishaw is entering a quiet period between product cycles with fewer electronics project orders on the horizon. Low visibility and a forward PE ratio of over 20 keep us on the sidelines for now.
China wasn't rich pickings for everyone, though. Morgan Crucible (MGCR) blamed its autumn profits warning on "depressed" conditions there and a slump in demand for materials used in solar panels. Costs are being cut, but the shares aren't cheap and it may begin discounting to drive top-line growth. A cyclical recovery or rumoured bid interest may save the day.
| COMPANY NAME | LATEST PRICE (P) | MARKET VALUE (£M) | PE RATIO | DIVIDEND YIELD (%) | PERCENTAGE CHANGE IN 2012 | LAST IC VIEW |
| DIALIGHT | 1,060 | 341 | 29.6 | 1.0 | 52.1 | Hold, 1,054p, 24 Jul 2012 |
| DOMINO PRINTING SCIENCES | 591 | 659 | 16.4 | 3.5 | 13.9 | Hold, 590p, 11 Dec 2012 |
| HALMA | 459 | 1,734 | 18.3 | 2.2 | 39.0 | Hold, 421p, 20 Nov 2012 |
| MORGAN CRUCIBLE | 274 | 767 | 9.2 | 3.5 | 2.2 | Hold, 252p, 10 Oct 2012 |
| OXFORD INSTRUMENTS | 1,500 | 843 | 24.4 | 0.7 | 49.8 | Buy, 1,285p, 13 Nov 2012 |
| RENISHAW | 2,081 | 1,515 | 21.8 | 1.9 | 106.0 | Hold, 1,742p, 25 Oct 2012 |
| SPECTRIS | 2,088 | 2,451 | 15.8 | 1.9 | 59.0 | Buy, 1,697p, 19 Oct 2012 |
