We were bullish about all-but two of the electronics companies in our last FTSE 350 review, but none had a good year in 2022 in terms of share price performance. One of the pair we were more circumspect about, XP Power (XPP), dropped out of the index completely as component shortages and logistics challenges caused a fall in production volumes, triggering a 60 per cent share price decline.
Most of the others held up fairly well. Halma (HLMA), Morgan Advanced Materials (MGAM), Oxford Instruments (OXIG) and Spectris (SXS) have all reported stronger sales and profits that are either in line with, or ahead of, analysts’ expectations. Yet as with de-ratings in other parts of the market, share price declines reflect nervousness about future earnings potential. In its first quarter trading statement at the end of October, Renishaw (RSW) reported “a weakening in order intake in the semiconductor and electronic sectors”, and market sentiment turning "more cautious".
A ramp-up in semiconductor production has been met with weakening demand, and the chip shortage now risks turning into a glut. After growing by 4.4 per cent last year, the market is forecast to shrink by 4.1 per cent in 2023, according to World Semiconductor Trade Statistics – a body run by the world’s biggest chipmakers. Equipment sales to semiconductor manufacturers are set to decline by around 16 per cent this year to $91.2bn (£73.8bn), according to industry trade body SEMI.
Another uncertainty is the role that geopolitics will play in all of this. Analysts have suggested that the billions of dollars the US government is providing to incentivise chipmakers to set up fabrication plants in the country will be a boon for the sector over the long term. However, its tightening of export licences to Chinese chipmakers could create headwinds for some.
| FTSE 350 Electronics | ||||||
|---|---|---|---|---|---|---|
| Price | Market | 12-month | Fwd | Dividend | ||
| Company | (p) | cap (£mn) | change (%) | PE | yield (%) | Last IC view |
| discoverIE | 827 | 797 | -2.2 | 24 | 1.4 | Hold, 912p, 23 Nov 2022 |
| Halma | 2,138 | 8,117 | -11.7 | 27 | 0.8 | Buy, 2,133p, 15 Dec 2022 |
| Morgan Advanced Materials | 315 | 899 | -2.5 | 10 | 2.5 | Buy, 315p, 29 Jul 2022 |
| Oxford Instruments | 2,290 | 1,321 | 7.5 | 23 | 0.9 | Buy, 1,976p, 08 Nov 2022 |
| Renishaw | 3,858 | 2,808 | -12.2 | 21 | 2 | Buy, 3,422p, 15 Sep 2022 |
| Spectris | 3,170 | 3,314 | -4.2 | 19 | 2 | Buy, 2,945p, 01 Aug 2022 |
| Source: FactSet | ||||||
