- Tangible benefits from 'Horizon' programme are now in evidence
- Asian markets supportive with Semiconductor & Communications at the fore
Good news for shareholders in Oxford Instruments (OXIG) as the manufacturing and research group revealed that revenue in the year to the end of March is expected to be modestly ahead of the prior year outcome – a notable achievement for the industrial group when you factor in the faltering global economy, increased pressure on supply chains and adverse foreign exchange translations.
The market responded positively to the trading update, with shares in the FTSE 250 constituent recording a double-digit increase. Trading continued in a positive vein through the second half of its financial year, with good order growth from Asian markets, particularly China.
The automotive and aerospace industries may have seemed in disarray at times over the past year, hardly a desirable trading backdrop. But the group has still benefited from underlying demand and an expanded order book linked to its Semiconductor & Communications and Advanced Materials segments.
Corporate self-help measures can occasionally seem somewhat nebulous in terms of actual financial performance, but Oxford’s ongoing ‘Horizon’ strategy, which involves internal reorganisation measures and a greater focus on customer support, is delivering tangible benefits on both the cost front and marginal profitability. The measures are designed to enable employees to take a more holistic view of the business, thereby reducing the risk of production units becoming siloed within the organisation – a desirable objective given the complexity of the group’s operations.
Oxford expects adjusted operating profit for the 2020-21 financial year to be between £55m and £57m. That is well in advance of consensus, and analysts at Peel Hunt point to the improved flexibility of the group’s cost base and a sharper focus on structural growth markets as key determinants of the improved showing. The broker has upgraded its adjusted FY2021 earnings estimate by 17 per cent to 73.6p a share, and it now anticipates a 130-basis point improvement in the operating margin. We upgrade to buy with the shares trading at 2,029p.
Last IC View: Hold, 1,935p, 10 Nov 2020
