Oxford Instruments surges after reinstating dividend

Laboratories are booming again and Oxford Instruments (OXIG) is trading at all-time highs – even if its earnings haven’t recovered fully from the tough conditions brought on by Covid-19.

The high-tech instrument maker had a stronger summer after seeing business decline in Europe and North America earlier in the year. Sales to Asia, where the initial Covid-19 recovery came earlier, propped up first quarter earnings. The company’s valuation is now over £1bn and its forward price-to-earnings ratio almost double that of the five-year average at 31 times – investors have clearly been taking notice. 

Half-year figures were a mixed bag, so while net cash climbed more than a fifth to £81m (before lease liabilities are included), adjusted operating profit fell 7 per cent to £24m. The group has not been unscathed by the general decline in commercial activity. The group only saw revenue and operating profit increase in its service and healthcare business, although there was an overall improvement in orders and sales between the June and September quarters.

Oxford Instruments has reinstated its half-year dividend on the back of its performance in the six months to September 30, after cancelling its previous half-year payout and deciding not to pay a final dividend after the end of its financial year in March. The 4.1p dividend is the same as last year’s planned payout.  

Chief executive Ian Barkshire said he expected the group’s full-year performance to be “a little behind” last year when it recorded an adjusted pre-tax profit of £50m. Consensus estimates compiled by FactSet put full-year adjusted pre-tax profit at £38m, increasing to £44m in 2022.  

Oxford Instruments poses an interesting dilemma for investors – R&D progress and improving forward orders are set against a lofty rating and the reality that sales could come under pressure from further lockdowns. Amid the uncertain outlook and premium valuation, we stick to hold.