When Sir David McMurtry was working on Concorde at Rolls-Royce in the 1970s, he discovered a design problem with measuring fuel pipes in the supersonic jet’s engines.
His answer was to invent a tool in his garage. That tool gave birth to Renishaw, an engineering empire that now has operations in 36 countries, making everything from products used in brain surgery to wind turbines.
Lately, life has got a lot harder for Renishaw. The Gloucestershire-based engineer is deeply exposed to the global economic cycle.
Last March, it warned that the slowing Asian market, thanks to Donald Trump and tariffs, was hitting demand for its encoder devices, which ensure the precision of machinery used to make consumer electronics.
Weaker demand for smartphones has also taken its toll, with sales in its biggest market, the Asia Pacific region, down 17% in the year to the end of June.
Two more profit warnings followed, including a terse statement last month saying that the bumper orders seen a year ago had not been repeated. The downturn has coincided with McMurtry’s decision early last year to relinquish some control, stepping back to the position of executive chairman and appointing lifer William Lee as chief executive.
However, McMurtry, 79, and co-founder John Deer still control more than half the company, leaving a structure more akin to a private fiefdom than a FTSE 250 stalwart. Management keeps other investors at arms’ length, making McMurtry and Deer divisive directors. (Their re-election was last month rejected by 22% and 23% of shareholders respectively.)
Renishaw entered the current downturn in much better shape than previous ones. It has almost £100m on its balance sheet, which should ensure it can continue to invest in innovation and research, but last year’s 17% of sales could be a stretch.
The scale of the slowdown has been staggering, even by Renishaw’s standards, with profits in its latest quarter falling from £32.6m to just £4.3m. Its shares have fallen 31% from their high of £57.45 in June last year, to close last week at £39.38, valuing the company at £2.87bn.
BlackRock and JP Morgan have built up small but rare short positions in its shares.
Renishaw is cutting costs, merging factories, but the pace of the sales decline, which accelerated to 19% in the latest quarter after last year’s 6% fall in sales, suggests it will have to cut faster and deeper.
Even if Trump achieves his long-promised trade deal with China, it will take a long time before Renishaw feels any benefit. Avoid.
