The FTSE 250 firm is getting its act together which could help to drive earnings and the share price
Thursday 07 Nov 2019 Author: Steven Frazer

We live in a world of climate change, ageing populations, pressure on food and water supplies and depleting raw materials. Against these substantial challenges we look to science and technology to provide solutions, and Oxford Instruments (OXIG) hands the boffins the technology tools.

The FTSE 250 member is among the world leaders in its field, providing equipment to global industrial companies and the wider scientific research community.

We appreciate this may be a tricky industry for investors to understand without a firm grasp of the natural sciences, but Oxford Instruments is an expert in many industries.

Its products, systems and tools are used to improve the quality and safety of food, design semiconductors, and to better understand geology in the mining and oil industries, among many other applications.

Squeezed customer budgets and poor sales execution made for a patchy performance in recent years but this is being addressed through ‘Project Horizon’, a programme designed to create a customer centric business model, with greater focus on commerciality.

Oxford Instruments is already making progress, as seen in better financial performance and winning greater confidence from the investment community. It is hoped that these measures will also leave the business with better earnings resilience to the industrial cycle than in the past.

But the job is far from complete, with analysts anticipating that Oxford Instruments can drive out extra efficiencies. ‘Subject to short term global trade influences, we expect business metrics to continue to improve’, says Shore Capital analyst Robin Speakman.

For the year to 31 March 2019, Oxford Instruments generated an operating profit of £49.7m (adjusted for continuing businesses only) on £333.6m of revenue. That works out at a 14.9% profit margin, versus circa 21% for closest peers Halma (HLMA) and Judges Scientific (JDG:AIM). Speakman believes Oxford Instruments’ profit margins can improve.

Many of the industries and applications targeted by the company are focused on mega-trends offering substantial growth potential over the long-run. Investors should also note that investment in research and development, all expensed through the profit and loss account, continue at a high level, sustaining competitive and technical leadership.

Data from Refinitiv puts Oxford Instruments on a forward 12 months price-to-earnings multiple of 18.6, versus 22.6 for Judges Scientific and Halma’s 30.8. So you have an opportunity to buy a fascinating company with strong earnings growth potential at a much cheaper price than its pears.

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