Judges Scientific chairman sells down

Judges Scientific (JDG) focuses on the scientific instruments sector with sales typically driven by long-term growth in higher education. But the group has suffered from the recent Covid-19 disruption to research projects around the world. Amid the closure of universities, cancellation of scientific conferences and industrial customers trimming their capital expenditure, Judges’ organic revenue shrank by 12 per cent year-on-year in the six months to 30 June. Conditions in North America – its second largest market – were particularly tough, with organic sales dropping by 30 per cent versus a year earlier.

Some resilience to the pandemic turmoil has come from Judges’ ‘buy-and-build’ M&A strategy, with recent acquisitions limiting the overall decline in first half revenue to 7 per cent. The group purchased Moorfield Nanotechnology – which makes instruments to cover material with thin films – for £2.3m in December and Heath Scientific – which specialises in devices that measure the heat released during chemical reactions – for £7.3m in May. It has now followed up those two deals with the £2.6m acquisition of Korvus Technology which, like Moorfield, manufactures coating instruments. The majority of Korvus’ sales are to universities and broker Liberum believes it will add a modest £0.5m to Judges’ adjusted operating profit next year.

Against this backdrop, chairman Alex Hambro recently offloaded 2,000 shares worth £103,500. No reason was given for the transaction although Mr Hambro has retained 62,000 shares, equivalent to just under a 1 per cent stake in the company. Judges’ shares are currently sitting slightly above the 5,175p price at which Mr Hambro sold, at 5,200p.

The share disposal was announced hours after news of the Korvus acquisition on 19 October. We don’t see the disposal as a red flag, but there is concern over how long it will take Judges’ end markets to recover. It remains unclear when Covid-19 will abate and recessionary conditions will maintain pressure on customers’ capex budgets. Analysts envisage a slow earnings recovery with consensus forecasts still below pre-pandemic levels in 2022. But the balance sheet is in good trim – the group was sitting on £8.2m of net debt at the end of June, equivalent to just 0.5 times cash profits (Ebitda). This should enable further acquisitions to help bolster growth and Judges has identified over 2,000 potential targets in the UK alone. It also increased its interim dividend by 10 per cent – a rare feat in the decimated income landscape – suggesting the shares are worth hanging onto. Hold at 5,160p.

Last IC View: Hold, 5,100p, 23 Sep 2020