A sense of relief best explains the mildly positive reaction to flat profits at Oxford Instruments (OXIG) last year. Acquisitions guaranteed modest top-line growth, but after a strong fourth quarter, management is confidently predicting an organic improvement this year. The outlook for government-funded R&D has improved, too.
After stripping out an extra £10m of one-off items and adding back a £4.1m hedging gain, pre-tax profit was hardly changed at £47m. Oxford exports almost everything it makes, so a £5.9m currency hit was inevitable, but acquisitions added over £27m to sales. That was mostly at the nanotechnology division, where revenue grew 9 per cent to £181m, including a couple of months' contribution from the £158m purchase of Andor Technology in January.
The end of Oxford's £40m superconducting wire deal with the ITER nuclear fusion research project hurt revenue at the smaller industrial division. But strip out that project and there was modest underlying growth. The US business also performed well after last year's budget impasse. Any recovery in demand for high brightness LED (HBLED) efficient lightbulbs would be a significant boost.
With a full-year contribution from Andor this year, broker Numis Securities expects adjusted pre-tax profit of £54.6m in 2015, giving adjusted EPS of 70.7p (from 67.7p previously).
OXFORD INSTRUMENTS (OXIG)
|ORD PRICE:||1,369p||MARKET VALUE:||£784m|
|TOUCH:||1,369-1,372p||12-MONTH HIGH:||1,825p||LOW: 1,151p|
|DIVIDEND YIELD:||0.9%||PE RATIO:||43|
|NET ASSET VALUE||245p*||NET DEBT:||89%|
|Year to 31 Mar||Turnover (£m)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
Ex-div: 24 Sep
Payment: 23 Oct
*Includes intangible assets of £248m, or 433p a share
There's clearly potential at Oxford, but an anticipated £5m currency hit will probably prevent anything other than modest growth this year. With the shares on a forward PE ratio of over 19, it will take more than that to make us alter our recommendation. Hold.
Last IC view: Hold, 1,365p, 17 Apr 2014