Judges Scientific builds the order book

Major market upheavals present just as much a challenge to companies which pursues a 'buy and build' strategy as they do to anyone else. True, the increased financial distress posed by a prolonged period of rising interest rates could give way to enhanced acquisition opportunities. But the financial impact of the pandemic and subsequent war in Ukraine will always fall on the negative side of the ledger.

 Alexander Hambro, chairman of Judges Scientific (JDG), made this point in the group’s half-year summary, stating that “world tensions are unresolved and breed a tendency to re-shore and buy local, a trend that is not ideal for the scientific community which thrives on free exchange”. That’s a frank assessment of prospects, yet against this challenging backdrop the group has delivered a one-third increase in adjusted profits to £12.8mn, a 40 per cent hike in operating cash flow, and significantly improved order intake. Hambro noted that “all the measures of organic performance were again beaten, with results bolstered by the contribution from Geotek”. The integration of Geotek, a manufacturer of instruments used to measure and log various characteristics of geological cores, continues to bolster profitability, although the full extent of the contribution will only become apparent during the second half due to delayed revenue recognition at one of Geotek’s divisions.

The benefits of M&A aside, the group’s trading profit increased by 12 per cent on an organic basis “despite the delayed effect of measures taken to compensate for the inflationary pressures”. Return on total invested capital contracted year on year due to the higher multiple paid on the Geotek deal, but management confirmed that adjusted earnings for the full year will meet market expectations. Analysts at Liberum give a forward rating of 26 times forecast earnings, highlighting that “the long-term track record is excellent and growth prospects remain compelling”. Hold.

Last IC view: Hold, 7,850p, 22 Sep 2022