Beating the overall market by roughly 180% over the last three years, metrology and healthcare components supplier Renishaw (RSW) is riding the wave of swelling electronic components demand, particularly in the Far East. Trading has been especially strong in recent months as past restructuring pays-off.
The Gloucestershire-based company reported its second consecutive record-breaking revenue haul for the first three months to end September, having done similarly in the final quarter of last year. Renishaw confirms that overall sales chalked-up between July and September hit £101 million, far outstripping the £79 million registered at the start of last year, and to a large degree thanks to strong demand from Far East-based customers.
'The trend is expected to continue into the second quarter,' states Sir David McMurtry today, the company's chairman and chief executive.
The market certainly likes the news, the shares rallying more than 8% to £17.23.
Yet it is worth being cautious. Renishaw is notorious for its lumpy orders, where big one-off contracts can skew the flow. And that's likely to be behind at least part of the first quarter's forecast-thumping performance. 'We assume includes irregular orders related to production of new products for Apple (AAPL),' explain analsyts at N+1 Singer this morning. The US electronics and software giant recently launched two new iPhones amid a lot of fanfare.
Large and lumpy orders remain the biggest imponderable for Renishaw and its investors.
'We sometimes liken Renishaw’s financial performance to a rollercoaster ride,' spelled out analysts at Investec in August. 'Short-term, it can feel that way as revenues fluctuate and costs inexorably rise.'
There's no detail about profits in today's short statement, and that's another element to ponder. Renishaw has put a lot of effort into new products to seed demand, yet Renishaw has also had to bolster staff numbers, and operating costs, to match, which raises the question over profit margins. Last year adjusted operating profit margins fell from 22.8% to 19.8% on a hardly eye-catching 2.5% revenue rise.
'Longer-term we believe there can be little doubt that this rollercoaster is defying gravity and climbing uphill, as successive waves of new products gain traction and established products find their way into new applications,' Investec concluded in August.
And while N+1 Singer is also hopeful about the company's future prospects, saying 'given Renishaw’s typically strong drop-through of incremental sales into profit, we anticipate increasing our ful year 2015 pre-tax profit by potentially a double-digit upgrade,' they caveat the point that 'if the strong performance has arisen from irregular orders then full year 2016 numbers could be largely unchanged.' The broker has also stuck to its fence-sitting 'Hold' recommendation on the stock.