Science-based engineering firm Renishaw (RSW) has a clear and focused approach which it consistently pursues regardless of the macro-economic backdrop.
A big decline in the share price in recent months should spark your interest as it means you can gain exposure to this high-quality outfit at a significantly more attractive price.
The company has been unfairly punished by the market for investing in its business. Its strong commitment to research and development spend and vertically integrated model (it makes its own stuff) means that margins and profit can fluctuate on a quarter-on-quarter view.
This was the story in the first quarter of its current financial year where revenue grew by 8% but costs increased by 14%. As a result, analysts downgraded earnings forecasts for the current year, but these now look very much factored in.
We are happy to pay a premium rating for this outstanding business. The company is a world leader in the development and manufacture of very high-end precision measurement kit. Products are used across a range of sectors from aerospace to automotive, healthcare and a range of other markets.
Products include 3D printed customised medical implants, and hardware and software to improve the calibration and performance of machine tools.
The firm’s sheer level of expertise creates significant barriers to entry and means it faces few true competitors.
This position is underpinned by consistently spending 15% to 16% of sales on research and development, the sort of level traditionally associated with a tech firm or pharmaceutical company, says Milena Mileva, fund manager of Baillie Gifford UK Growth (BGUK). She says Renishaw is an ‘exceptional growth company’ which she wants to hold for the next decade or beyond.
It is also distinct from a lot of other engineers in that it does the bulk of its manufacturing in-house. It has plants in the UK, Ireland, India, Germany, the US and France. This supports quality control and its heavy use of automation drives efficiency.
The stock could suffer some volatility if the global economy struggles, plus some analysts have raised particular concern over exposure to the Chinese automotive industry. The business also has relatively limited visibility (around six weeks) on its order book.
However, we remain confident these concerns will be outweighed by the inherent strengths of the business over 2019 as a whole. This is a best-in-class company to own for the long term. A QUALITY WAY TO PLAY THE PRECISION EQUIPMENT MARKET