Renishaw benefits from growing demand for 3D printing

Renishaw (RSW) sells equipment used for precision manufacturing. The semiconductor industry drove demand last year, but now we are nearing the bottom of the cycle the need for Renishaw’s equipment has slowed. This has been offset by increased demand for its additive manufacturing (known as 3D printing) machines, which are being used to make parts across electronic, healthcare, aerospace and defence sectors. 

All in all, revenue from manufacturing technologies increased 7.2 per cent to £331mn in the six months to 31 December, although adjusted operating profit fell 18 per cent. Across the group, labour costs increased from £115mn to £133mn, which fed through to a five percentage point decrease in the adjusted pre-tax margin to 21 per cent.

Despite the slowdown in demand, capital expenditure increased from £12.2mn to £20.2mn. This investment in plant and equipment includes £7.8mn spent on a production facility in Wales. This investment sets the business up for when the market picks up again.

Demand for semiconductors is now at a relatively low ebb. Companies overspent last year, and the slowdown in consumer electronics means there are inventory backlogs. Demand for Renishaw’s equipment will eventually return and will be boosted by government subsidies, which are encouraging investment in manufacturing nearer to home.

FactSet broker consensus currently has Renishaw trading on a forward price/earnings ratio of 21.8. This isn’t cheap, but exposure to the long-term growth trends of 3D printing and semiconductors justifies it. We are near the bottom of the semiconductor cycle; growth will pick up again. Buy.

Last IC View: Buy, 3,422p, 15 Sep 2022