Oxford Instruments PLC (OXIG)

Hi,

A bit of a primer on Oxford Instruments below, for anyone who may be interested.

I bought this quite recently because, although it seems quite dull, it may turn out to be a long-term compounder (alternatively, it may not! :grinning:)

OXIG – Oxford Instruments PLC

Full listing on the LSE, Market cap 1.36bn, 1,611 employees, 2445 pence per share today (21st Sept 21), pe 30ish.

w: https://oxinst.com

Purpose of the Company

Oxford Instruments plc is a leading provider of high technology products and services to the world’s leading industrial companies and scientific research communities.

Richard Beddard article here; 3 questions about Oxford Instruments plc | Deep dive into financials - ShareScope Articles

History

1959 – husband and wife team Sir Martin and Lady Audrey Wood focussed on building powerful magnets in their garden shed, progressing to do their work within an abattoir and then a boat-house!

1983 – floated on the LSE. The purpose being to raise funds to develop powerful MRI magnets. One of the first University related spin-offs.

There is a more detailed history towards the bottom of the page on this link (with pictures!);

People I Science I Business: Oxford Instruments | History of Science Museum

Company Operations

Turnover: 24.1% China, 22.6% USA, 12.4% Japan, 10.3% Germany, 4.5% UK.

Products: 46.7% Materials+Characterisation,35.6% Research+Discovery, 17.7% Service+Healthcare. (I have no idea what these categorisations mean beyond the obvious!)

Fundamentals

ROE 16.1%, ROCE 17.1%. Both much higher than 5 yrs ago and also their 5 yr averages).

Gross margin 51.7% (up 3.4% from 5 yrs ago)

Net debt to market cap -6.68% (net borrowing -£90.1m)

Pension deficit? No

Reported eps increase over 5 yrs ago +489.3%

FCF per share increase over 5 yrs ago +38.1% (why so different to eps increase, above?)

F-score 8/9 (new shares issued - New shares dilution @ <1% p.a. Book value per share 5 year cagr is +13.2%.

Revenue 5 yr cagr +0% p.a. and eps cagr +42.6% p.a. (reported eps)

Cash conversion 114.5%

Drivers for Growth/Qualities of the company

  • Knowledge-based company with high levels of intellectual property. Difficult to replicate. The company has a good reputation, which is everything due to the accuracy required by clients.
  • Going for organic growth rather than buy and build, so maybe this reduces risk from pre-2015 when a buy and build strategy was followed.
  • The company sells ‘Picks and shovels’ products for the scientific community (ref Richard Beddard article). Possibly a good place to be?

Risks

  • Will management use the surplus cash which is now being generated wisely, or will it be used on purchasing companies at the wrong price ‘a la’ pre-2015?
  • Look again if Ian Berkshire (CEO) leaves
  • Is China at 22.6% of turnover a risk? Maybe not if they need OXIG’s products to progress their own science, unless the UK government bans exports to China?

Share price history

Price falls during 2013 to 2015 when the company de-rated from a pe of 25 to 13.2. This is explained in Richard Beddard’s article, the problem essentially being too much debt which was generated by acquisitions due to the then ‘buy and build’ strategy.

Valuation

Currently trading at all time highs, which tends to be a point at which I like to purchase.

Currently pe=30.5. Is this over-rated?

  • Looking at dcf, with a fcf growth rate of 6.7% (the 5 yr average) and a discount rate of 10% the current share price is undervalued by 18%. (2887p vs 2445p)
  • Comparing to SDI and Judges they all seem pretty similar i.e. no one company stands-out. In fact, OXIG has the lowest fc PE of (only!) 28.6 per sharepad vs 30+.

Management

Chairman (non-exec) – Neil Carson since Dec18 (ex Johnson-Matthey, ex chair TT Electronics, ex dep chair TI Fluid Systems).

CEO – Ian Berkshire (CEO/Board Nov15, employee since 1997), ex Marconi, Identified as a good catalyst by Mr Beddard.

CFO – Gavin Hill (May 16 ex Synergy Health?, Serco, Sygenta and AZ)

Ownership

12.92% Ameriprise Financial Inc?

6.34% BlackRock

5.2% Sir MF and Lady KA Wood (the founders!)

Chairman’s AGM statement reported today (21st Sept 21)

Slightly ahead of average expectations of £61.2m

Verdict- Hold.

Any comments welcome!

Regards,

Ben

2 Likes

Hi Ben,

Many thanks for the write-up. Not a company I have looked at before.

Can’t fault this boardroom for lack of relevant industry skills. Plenty of physics and engineering degrees:

Chief exec Mr Barkshire studied Physics at York, which funnily enough my son will undertake there from next week.

Low board shareholdings have not stopped the business and share price from doing well:

OXIG is one of the few companies to operate with a defined-benefit pension surplus (£16m in the accounts).

Significant contributions to the scheme evade the P&L:

The accounting is legit, but these pension costs are genuine cash charges.

The notes indicate scheme assets of £340m have to fund annual benefits/admin charges of £9m. Interest from the assets was £8m last year, so the scheme’s assets (assuming modest investment gains over time) do seem sufficient to cover the present obligations:

Small-print says deficit recovery payments of £7.8m will be payable until 2026 and rise by 3% per annum:

So an extra £40m or so of cash out of the door. £40m is not significant if you add it to the £1.3 billion market cap for valuation purposes.

Revenue per employee is relatively high at c£200k and underpins the notion of attractive IP:

OXIG sharepad rev per employee

OXIG outperforms Judges and SDI on this measure:

JDG sharepad rev per employee
SDI sharepad rev per employee

Maynard

1 Like

Hi,

I only screened by pension deficit to market cap.

Because the scheme is currently in surplus I didn’t look any further, but should have done!

It’s a good point, thank-you! (As are the points on relatively low level of director share-holdings and turnover per employee).

Regards,

Ben