Renishaw runs into profit-taking despite sharp increase in profits

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Renishaw PLC (LON:RSW), the high-precision healthcare technology group, saw adjusted half-year profits soar from a year earlier.


Adjusted profit before tax in the six months to December 31, 2020, rose to GBP49.2mln from GBP15.1mln the year before on revenue that eased to GBP255.1mln from GBP259.4mln.


Statutory profit before tax jumped to GBP63.9mln from GBP9.9mln the previous year, resulting in earnings per share rising to 72.1p from 10.2p in the same period of 2019.


The board expects full-year revenue to be in the range of GBP515mln to GBP545mlb. Adjusted profit before tax is expected to be in the range of GBP85mln to GBP105mln.


The group has resumed dividend payments, starting with an interim dividend of 14p.


The group said all of its manufacturing facilities are operating as normal and despite many challenges, supply to customers has been maintained throughout the pandemic.


To mitigate against the potential impacts of the UK leaving the EU Renishaw has established a warehouse in Ireland, expanded the existing warehouse in Germany and increased the inventory of certain finished goods and components at sites within the EU and the UK.


Although there have been some delays at the UK borders for shipments into the EU since the beginning of the year, the measures taken have reportedly minimised the impact on customer service.


The board remains confident in the long-term prospects for the group.


“Whilst the trading environment remains uncertain as a result of the pandemic, we currently have a strong order book, and we are well placed to take advantage of the opportunities presented by any recovery in the global economy,” the company said in its interim report.


Broker Peel Hunt said it was a strong set of interims from Renishaw that could lead to “double-digit per cent consensus upgrades”.


It said that momentum looks to be continuing into the second half of the group’s fiscal year, mainly thanks to strength in encoders for the semiconductor industry and the recovery in China.


“APAC [Asia-Pacific] was up 16% at CER [constant exchange rates], but the Americas and Europe are still seeing weaker demand caused by the pandemic and also particular sectors, especially Aerospace.”


Following management guidance, Peel Hunt has adjusted its profit before tax forecast for the full year to GBP95mln from GBP48.6mln, explaining that the size of the upgrade is because it had not adjusted its forecasts following the pick-up in the fiscal second quarter that was revealed in the company’s trading statement in October.


The broker has hiked its target price to 5,000p while sticking with its ‘hold’ recommendation.


“Even after the upgrades, the shares still trade on a PE [price/earnings ratio] of 52x, which we feel more than adequately reflects the outlook,” the broker concluded.


Renishaw shares trade at 5,900p, down 3.6% on the day, after a fantastic run since March 20 (around the time of the first UK lockdown), when the shares were trading at 2,428p.

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