Renishaw capitalises on clamour for chips

It’s hardly surprising that the share price of engineering company Renishaw (RSW) has moved around so much in what has been an eventful year.

Its market capitalisation spiked to more than £5bn after the company announced the start of a formal sales process in March, with its 80-something founders – chairman Sir David McMurtry and deputy chairman John Deer – expressing their intention to sell their combined stake of about 53 per cent in the business.

However, expectations were dampened in July when the company said none of the potential suitors would have delivered “an outcome that satisfactorily met the interests of all stakeholders”.

Its value fell further, still, to a low of £3.1bn in October 2021 after the company’s auditor requested more time to sign off accounts.

However, a strong set of results and a bullish trading update helped to push the company’s shares up more than 12 per cent. After double-digit sales growth through FY 2021, revenue in the first quarter jumped 35 per cent to £157.8m and adjusted profit more than doubled to £41.7m.

The company also reported a 79 per cent increase in cash to £215m for thefull-year period on the back of higherprofit, a dividend cut in the previous year and reduced capital expenditure. The balance had increased to £234.8m by the end of September.

“Our current challenge is very much keeping up with demand,” chief executive Will Lee said.

The company also reported a 79 per cent growth in cash to £215m for the full-year period on the back of higher profit, as well as the fact that it cut dividends in the previous year and reduced capital expenditure. The balance extended to £234.8m by the end of September.

Capex is expected to increase this year, however, as Renishaw buys new production equipment, makes a final payment on a South Korean plant and spends more on IT. It has also grown headcount by about 25 per cent to keep pace with demand.

The post-results bounce in its shares means Renishaw is trading at about 32-times next year’s earnings, which is at the “premium end” of the sector, according to Henry Carver, an analyst at Peel Hunt.

This is hardly surprising. Although the company has ended its formal sale process, the rationale for instigating it remains in place.

“It will still be a stock around which people are expecting something to happen,” he said. Buying shares in the hope of a takeover is a brave move, though, and at current levels it sits just below analysts’ consensus valuations. Hold.

Last IC View: Hold, 6,900p, March 3 2021