REN­ISHAW (RSW)

Shares - - TALKING POINT -

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

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