Semiconductors drive growth at Renishaw

Strong demand for encoders helped drive precision engineering company Renishaw’s (RSW) order book up to a record high at the end of December, giving the shares a much-needed boost. Shares rose 7 per cent on the back of its half-year figures, but remain a good 30 per cent below their 12-month high. 

The share price has been marching steadily downhill since the firm’s founders, chairman Sir David McMurtry and deputy chairman John Deer, announced and then abruptly abandoned plans to sell their majority stake in the business in July last year. None of the potential suitors met their approval, but speculation around a sale and the uncertainty that entails has continued to drag on the company's valuation.

The engineering company posted double-digit sales growth across all of its regions in the six months to 31 December. Asia Pacific is the largest and fastest growing of these, accounting for almost half of revenues, followed by EMEA and Americas.

The ‘manufacturing technologies’ segment – which makes encoders for semiconductors, as well as metal cutting machines and 3D printers – was Renishaw’s star performer, growing sales by 30 per cent compared with the previous year. McMurtry said growth was driven by investment in industrial automation and the market for electronic goods.

Capital expenditure more than doubled year on year, including the completion of a new distribution facility in South Korea. Renishaw said on a call with analysts that it plans to increase spending on property and labour over the next 18 months, which should provide plenty of runway for growth.

The engineering firm now predicts its full-year sales to be between £650mn and £690mn in 2022, comfortably beating consensus estimates of £632mn.

“We currently have a record order book, and we expect demand from the semiconductor and electronics sectors to remain strong and that the recoveries in the machine tool market and co-ordinate measuring machine market will continue,” said the firm. The shares aren't exactly in bargain basement territory, trading at 29 times FactSet consensus earnings, but the price is adrift of its long-term averages relative to book value, cash flow and sales. With commercial activity on the rise, we move to buy.

Last IC View: Hold, 5,230p, 21 Oct 21