Renishaw feels the chill from the global economic slowdown and Brexit delays

As Renishaw updates the market Helal Miah, Investment Research Analyst at The Share Centre, explains what it means for investors.

Article updated: 15 October 2019 9:00am Author: Helal Miah

  • Revenues drop QoQ as demand is hit by challenging global macroeconomic environment
  • Investors could take comfort from group’s strong balance sheet where they have little debt and a strong cash position
  • The Share Centre has no formal recommendation on the shares, we note the shares trade in-line with sector peers and offer a modest dividend

The UK engineering firm is the biggest faller this morning on the FTSE All-Share and like most other businesses, it’s really feeling the chill from the global economic slowdown and undoubtedly the delays in investment spending in the industrial and manufacturing sector as a result of the ongoing Brexit saga. Its latest first quarter hasn’t got off to a great start as this morning’s trading update shows that revenues came in at £124.6mn compared to the £154mn in the same period last year, as demand is being hit by the ‘challenging global macroeconomic environment’. Adjusted profits before tax for the quarter were a mere £4.3mn compared to the £32.6mn last year.

The US/China trade war and slowdown in the global economy are no doubt a lead cause for reduced demand from electronics businesses who are based in the APAC region. But, there must also be an element of reduced demand for UK based companies from their international customers because of the never ending uncertainties caused by Brexit. This may be hard to quantify but it is also evident in updates from other exporting companies even though sterling’s weakness should be providing some support.

Renishaw’s shares have been drifting lower like most other companies in the sector, but investors could take comfort from the group’s strong balance sheet where they have little debt and the cash position remains at around £100mn. While we don’t have a formal recommendation, we note the shares trade at a fair price-earnings multiple, in-line with the sector peers and offer a modest dividend. Should the global economic slowdown not turn out to be a bad as feared, then we believe that Renishaw is well placed given the management feel confident that the structural demand in their end-markets remain intact while further cost savings initiatives should begin to feed through in due course.

Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.