LKH has not posted on any board, including RDS (of which he was a pensioner) for many months now. His silence was sudden, so I suspect he has either done a Capn Bob and fallen overboard after a G&T too many or succumbed to a heart attack.
In either case, I miss him a lot. RIP if thats whats happened.
This sort of manufacturing is a disruptive force in manufacturing. how will it impact RSW? And When will it be a major driver of revenue? Metrology is always needed, even if machines age this component will need upgrades etc. So how are these dynamics to play out? I do not know. RSW just looks too expensive.
You were right about the out-performance and I apologise. I was using the LSE graphing tool which only goes back 5 years and that does show that the current phase of out-performance did begin in 2016.
I sold before they peaked and after the price fall in Feb, I bought back in. A rare piece of luck. Normally I sell just before a share price rises and buy before it falls. I think they are an excellent company but I have two concerns - I think that they are probably a cyclical company and I am also worried about an apparent lack of a succession plan for the company founders. As I said, I am going to hold onto them but keep a watchful eye.
if you plot their share price against the FTSE or any other index you like, you will discover that this amazing out-performance only began in 2016 and has lasted for 2 years. I think that believing it will continue may be an example of confirmation bias. I shall watch their price and performance like a hawk and fly away at the first sign of a downturn - says tomhawbuck
Possibly, possibly, but in that case I'm curious to know why you didn't sell up when the price dropped ~20% back in February?
Also, the "amazing out-performance" didn't begin in 2016, it's been going on for well over a decade: 2003 price £4.10, FTSE 4050, 2008 price £7.65, FTSE 6261, 2010, price £12 FTSE 5935, 2014 price £15.50 FTSE 6740, etc etc
The problem is that this bull market has run so long that it is hard to see what would happen in a downturn. When I was at the London School many years ago we were taught that machine tool makers were highly cyclical because as demand slows, manufacturers stop ordering new machine tools and run their old machines for longer. Given the global nature of the economy, this would affect all of RSW's markets at once. I'm not sure what has changed to alter this scenario, but wdik. What I do know is that if you plot their share price against the FTSE or any other index you like, you will discover that this amazing out-performance only began in 2016 and has lasted for 2 years. I think that believing it will continue may be an example of confirmation bias. I shall watch their price and performance like a hawk and fly away at the first sign of a downturn
Going back to the seventies, my recollection was of machine tool manufacturers being acutely sensitive to the economic cycle, and more recently of Renishaw being signficantly impacted in 2010. It is a good point that these days the timescales for purchase of this sort of equipment are longer.
In Renishaw's case I think that their global spread gives them a fair degree of insulation from economic cycles - in recent years if one geographic area has been lagging, another has been strong. And the probe is anyway a much lower cost item than the machine tool.
I wonder if good performance and a weakish pound increases the chance of a takeover. A Motley Fool article last year highlighted that the chairman and deputy chairman are both in their seventies and together own half of RSW shares, so might be open to a retirement sale.
I suspect we all are and can only surmise LKH has shuffled off as they say?
But remember that LKH sold his shares in RSW much to his later regret although he continued to proclaim the merits of the company.
It depends what you mean by "capital goods business". I would rather define them as a supplier to capital goods companies, principally machine tools manufacturers for their metrology products which are currently their main source of income .
Future growth may be in their health care division which is approaching profit and 3D printing.
Being a supplier to machine tool manufacturers globally means that it is not subject to regional blips in new investment. Modern machining centres have delivery dates of years not months and their customers may be years in their planning so that economic cycles are to some extent irrelevant. A probe for a new machine tool would be the last thing delivered although would be specified with the order.
You are therefore correct in that they have limited forward visibility of revenue but they are almost an automatic choice for measurement, the Kellogs Cornflakes of probes and their software.
Typical tight-lipped Renishaw update, just tells you things are going well. Seems to have caught Mr Market a bit on the hop, he seems to have been expecting some sign of the much touted economic slow-down. However, Renishaw is a very lagging indicator - they have pointed out in the past that they have limited forward visibility of revenue. They are clearly good for this year, but are obviously very much a capital goods business. Still, not selling myself.
On Renishaw, which Peel Hunt referred to as a "superb business", the analysts gave it a "premium rating", but noted it was "not bullet-proof", and that its communication with the market had not always been sufficient for it to feel completely comfortable with its forecasts.
Peel Hunt singled out some longer-term concerns about Renishaw's management succession scenarios, but noted that as shares were coming back to within 5% of its target price, it made the move to bump its recommendation back up to 'hold'.
Renishaw itself anticipates full-year revenues of £575-605m, and a pre-tax profit of around £136-156m, while consensus was at £599.6m and £140.1m, while the broker itself had pushed for £601m and £144.5m.
The analysts highlighted that Renishaw's key to profitability will be its progress in Healthcare, which it expects to break even by the end of FY19E.
"Our TP equates to a PER of 24.6x FY19e, a premium that reflects the quality of the Renishaw business," the analysts concluded.
'Factory equipment manufacturer Renishaw is going to be the fastest growing company in European capital goods sector over the next three years and catapult itself into the FTSE 100, said Goldman Sachs as it initiated coverage on Wednesday.
Renishaw, whose devices and sensors are used in factory automation for highly accurate measurements of products and the calibration of machine tools, was given a 'buy' rating by based on Goldman's target price of 5,500p.
Analysts pointed out that the 50% sell-rated consensus and concerns associated with the firm's margin potential and valuation were "unwarranted".
Analyst Jack O'Brien argued that Renishaw's sector premium was, in fact, justified in light of Renishaw's speed of growth and potential as a M&A target.
O'Brien highlighted Renishaw's products' ability to increase factory production yields, improve time-to-market and enable the continuous manufacturing feedback loop as providing a major market opportunity in Asia, where China is actively trying to promote high value-add manufacturing. He said this was a key driver into what was seen as a £1.5bn market opportunity by 2020.
The analyst expects growth of 30% per year from the sector, with Renishaw likely to add scope for new products to unlock the mass-production market.'
Having looked a bit more closely, I think these are really good results. I agree with every point you make, no point in my repeating them.
At a price of 49, I put the forward P/E ratio at around 32. That is demanding, and I can see the logic in your switch to IGG. I won't follow your example, because one of my rules is never touch financials, so I will continue to hold despite being well over-weight. I don't think the rating is excessive for the business.
I have a theory that low staff turnover correlates well with business success - unfortunately that is something we can usually only guess at from the Annual Report.
The results are very good.
This is simply some profit taking.
I've bought in on the expectation that the share price will recover very soon.
As with others I've been invested a long time with an excellent return, even without taking the dividends into account.
" or is there some underlying reason that is not obvious?"
There could be, but I doubt it very much - RSW seem pretty up front in their reporting.
I think the drop is just what you can expect on anything that reports anything these days, good bad or indifferent.
These were certainly not indifferent results, they were good results, that's all we can really ask for.
I'm hoping long term that healthcare, AM and Spectroscopy wil be much bigger shares of the business and profitable ones as well.
Games -- happy to keep as 3% of my wad, or a bit less today I guess lol !!
What's also nice is the Heathcare business is growing steadily and reduced loss from £6M to £1.9M and I expect this time next year it'll start to show a profit.
He's handed the CEO role to the Group Sales Director, which probably makes sense and he can now oversee the ship while he gets established.
EPS grew from 41p to 73p and the dividend is up, interim, from 12.5p to 14p (12%)
Increased R&D spend which should be encouraging.
Also the US grew 26% which was the concerning weaker area last year -- so maybe Trump is having an effect.
With all the money repatriated to the US and at long last a sensible corporation tax rate, I expect this will continue to be the case.
The growth in the Additive Manufacturing Products looks really encouraging, and the Raman Spectroscopy business is really great to see -- there is so much opportunity for spectroscopy -- if you look on their web site they have made a little unit for assessing the constituent materials in tablets.
I could see them installing these at airports etc. http://www.renishaw.com/en/raman-spectroscopy--6150
The cash is growing nicely, derisking the operation somewhat -- it's now £69M compared to £14M last year. No debt, but the number of employees has risen to ove 4500 now, so operational gearing is there to see.
The outlook statement seems pretty confident.
I top sliced yesterday taking this down from 3.3% of my wad to 2.9% and the stock dropped 10%, the action was to allow me to invest more in IGG in the same account.
What I cant work out is this. The share price has risen pretty steadily for the last year. How did those buyers buy with such confidence? The only explanation that makes sense is that they knew that profits and sales would go up.
Now it might have been due to the Brexit effect, with the fall in the value of the pound going straight through to profit bottom line. But the foreign currency information was pretty much known immediately after the fall in the pound after Brexit and most of the share price rise subsequent to sterling's fall. Today excepted, the share price has risen at a steep but constant rate even during recent times when the pound has been rising against the dollar. Are the buyers party to information that the rest of us are not, or am I missing a good source of open information?
If the results are good, the analcysts can still potentially pick holes in it and force the stock price down temporarily -- although I'm not sure I'm comfortable buying back that slice again anyway at these levels. The additive manufacturing/robotic arms are still a small % of the biz and they have increased their loss so far last year compared to the year before.
I remain to be surprised, but I'm assuming both these new divsions have a long way to go timewise before, if, they become a healthy enough share of the business.
In the meantime let's pray that a manufacturing downturn doesn't happen anytime soon or the 75% which is the metrology biz will get a bit of a clobbering again.
Nice that they have a bigger cash balance though as of last time increasing it to £56M -- no debt. No debt is great but it doesn't mean no risk, as the operational gearing is high at Renishaw with all those new mouths to feed. They added 244 new employees. many in sales and delivery of the healthcare proposition.
That takes them up to 4530 employed for a revenue per head of just under £132K and a post tax profit per head of £29.9K.
Like Games, I am a bit puzzled. The results next Thursday should be good, but that was priced in at 45, let alone 57. And the currency tailwind is now a headwind. So what is happening? Only four more days to find out.
I put it down to a thin market, a shortage of quality businesses for investment - there are more Carillions out there - and the possibility of a pleasant surprise from AM. And, after all, this is a very cyclical business selling into a global upturn. So I will continue to work hard at just standing there.
Too right, nettle! I started buying these in 2011, first entry was at 848, since when I have been in and out top slicing here and there, but holding on for now, and showing an overall gain of 'only' 275% plus dividends - not to be sneezed at, but how daft of me not simply to have held and held for the long haul!
It's unlikely to be a bid, as the old boys hold ~52% between them, so they would, effectively, have to sell their shares for any bid to succeed. Of the other 10 top investors, only Baillie Gifford, at 5.3%, has over 5%, and that hasn't changed since last June, nor has Blackrock's 3.1%.
If the price hits £65, entry to the FTSE 100 beckons (currently we're 111th, up over 60 places yoy).
I assume next week's figures will be spectacular, and could do with a bump in the divi (under 1% at current prices). If they aren't, then probably we'll go tumbling back down to under £50 or less (consensus broker forecast has a median target of £42.50).
I've been thinking about top-slicing since before £30. This time, if it does hit £60 next week, I really will take 10% off the table, lowering my average book cost from £20 to £14 (but fortunately with no CGT implications, as they're all safely tucked up in my ISA).
"I don't think RSW make anything that goes in an iphone."
True, RSW doesn't make anything that goes into anything per se.
They are a tools supplier and measurement company principally.
Even when they move into Additive Manufacturing it's most likely to be providing the kit and training the end customer..
It's interesting how RSW has managed to scale so much with that model -- they certainly could have the capability to outright manufacture things but that sets them against their customers and it's also a whole different financial ball game and infrastructure set up.
Games -- let's hope there isn't a downturn in manufacturing, or RSW will easily halve in price.
Well, they regularly get contracted by Apple to make things to put in iPhones, does that count?"
I don't think RSW make anything that goes in an iphone.
Further investigation reveals that an analyst had discovered that Japanese machine tool orders had increased some 28% where RSW probes are extensively used and a major market for their machine tools is China where factories machine the iphone8 casing.
An Apple promotional video showed an RSW probe being used when a casing was being machined so this analyst puts two and two together and makes twelve, concluding that due to upsides in the consumer electronic market that the Japanese are going to sell more machine tools to China with RSW probes that will machine Apple iphone8 casings!!
The analyst reckoned earnings increases of between 10 and 30% for RSW as a result.
Current year on year growth in that market is about 28% and based on the latest accounts, metrology sales to Asia would need to increase by a further 67% to achieve a 30% increase in RSW total revenue ie: about £160m and that's an awful lot of probes.
I concur with the first two reasons but am unable to see how they could benefit from "upsides in consumer electronics" considering they have absolutely no business in that market? -asks BertieB
Well, they regularly get contracted by Apple to make things to put in iPhones, does that count?
UBS say that SP's in RSW may have " benefited from improved general industrial demand, auto production growth and upside in consumer electronics"
I concur with the first two reasons but am unable to see how they could benefit from "upsides in consumer electronics" considering they have absolutely no business in that market?
UBS are one of many who have been predicting RSW doom and gloom for some time. It might be something to do with bankers inability to predict anything economic correctly since 2008 when they messed up big time.
RSW are overpriced and the prudent amongst us may be tempted to sell. Fundamentalists on the other hand who are invested for the longer term should continue to hold IMO.
Tom, this has been on a fantastic run for a few years, now could be the opportune time to pocket some of the profits we have enjoyed on this journey. Good luck to all who have a holding in this company, I'm sure there is more come.
This is by far my best performing share this year in a portfolio of about 13 or so. I like the company too and still think it is good value but am keeping a sharp eye out for any significant drop in the share price.
According to today's FT (page 22) UBS have downgraded RSW with a target price of £45.35, arguing that it is expensive at a 70% premium to its sector. We have had these downgrades from brokers before, but at the moment, I am comfortable with the shares, though I will look out for developments next week.
Interesting to look back to my post 06/10 when the share price had dipped to 4,670.
I said then: "IMHO this is a definite buying opportunity which LKH may regret if he ignores it.
The broker downgrade to which Blanketstacker refers was Deutsche Bank. In August they advised sell with a target of 3180 and now they have an increased target of 3630 and are still saying sell.
If this is really the reason for the sudden drop then I think investors should doubt the advice of a bank who consistently is unable to get its own affairs in order can be trusted to predict others.
This share is expensive at the moment as LKH says but it will seem cheap in a few years. Day traders can forget it but it is a share for the long term."
Well it looks like I was wrong about Day traders ignoring the stock but as I write it is 5,550 so a nice little profit of nearly 19% if you took my advice and saw the drop as a buying opportunity. Looks like Deutsche Bank advice remains suspect.
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