Morning Note: Market news and an update from Oxford Instruments.
Market News
US equity markets reached record highs last night – S&P 500 (+0.3%), Nasdaq (+0.4%) – as investors turned their focus to US CPI data and the Fed rate decision due tomorrow. Apple shares fell 2% after announcing a partnership with OpenAI and no other major surprises at its annual product event. Elon Musk said he would ban Apple devices from his companies if OpenAI’s software is integrated at the OS level, calling the tie-up a security risk.
This morning in Asia, markets were mixed – Nikkei 225 (+0.3%); Hang Seng (-0.9%); Shanghai Composite (-0.8%) – on concern over a weak China property sector and uncertain growth outlook. The FTSE 100 is currently little changed at 8,240, while Sterling trades at $1.2721 and €1.1818.
The oil price rebounded yesterday to $81.60 a barrel driven by upcoming summer fuel demand and lingering geopolitical risks. The iron ore price fell to a 2-month low on China property concerns. Gold steadied at $2,300 an ounce, while Chinese gold stocks fall after the PBOC halted purchase of the metal.
In Europe, Christine Lagarde says the ECB cut doesn’t put interest rates on a ‘linear declining path’, that the central bank must stay cautious, and last week’s rate cut won’t necessarily be followed by further rapid moves. 10-year bund yields currently trade at 2.66%.
The amount of zero-coupon Treasury bonds outstanding rose in May to a new high of almost half a trillion dollars. Barclays said the jump was higher than normal by historical seasonal standards. Heightened interest in Treasury Strips signals investors see the yield on long-term debt appealing.
Source: Bloomberg
Company News
Oxford Instruments has this morning released its results for the financial year to 31 March 2024. The group has also outlined a new strategy and set out medium-term revenue and margin aspirations. In response, the shares have been marked up by 10% in early trading.
Oxford Instruments provides academic and commercial organisations worldwide with market-leading scientific technology and expertise across its key market segments of Materials Analysis, Healthcare & Life Science, and Semiconductors. The group’s market-leading technology and expertise, developed over 60 years, spans all areas of fundamental research and provides unrivalled reach into academic institutions worldwide.
During the year, revenue grew by 9.8% at constant currency (CC) to £470.4m. Underlying order intake remained robust, with a positive book to bill (1.03), even though the group had stronger growth in the second half. The order book of £302m provides good visibility into the year ahead.
The group has rebalanced its positions in regional markets in the face of geopolitical shifts, focusing resources on non-sensitive areas in China, and successfully growing revenue and orders in Europe and elsewhere in Asia. By division, the group generated revenue growth of 11.4% in Materials & Characterisation, 5.7% in Research & Discovery, and 12.6% in Service & Healthcare.
The group’s operating margin fell by 100 basis points to 17.1%, primarily reflecting losses incurred in the quantum business as a result of ceasing commercial activities in China and continued operational investment. Adjusted operating profit fell by 0.2% to £80.3m but was up 3.7% in constant currency, in line with management expectations. Adjusted EPS fell by 3.3% to 109p. The group has declared a full-year dividend of 20.8p, up 6.7%, and equal to a yield of 0.8%.
Cash conversion slipped from 88% to 64%, excluding expenditure on facility expansion, reflecting an increase in working capital to support major site move and growth. However, the group’s balance sheet remains very strong, with net cash at the year-end of £83.8m. This enables continued investment, both organically and by acquisition, to support future growth. During the year, the group spent £39.2m on R&D, equivalent to 8.3% of sales, and its state-of-the-art compound semiconductor facility is now operational. This morning, the group has announced the acquisition of FemtoTools AG, a Swiss-based developer of nanoindentation instruments, for an initial cash consideration of CHF 17m, with a further CHF 7m consideration conditional on performance.
The group has also outlined a new strategy which will see it reorganised into two distinct business divisions to simplify and enhance its operations.
Imaging and Analysis will comprise the group’s microscopy and cameras business (Andor) and its materials analysis businesses (Asylum Research, Magnetic Resonance, NanoAnalysis and WITec). The group will look to ‘build on and improve’ an ‘excellent’ business, which already generates margins around 22%-24%.
Advanced Technologies will comprise the compound semiconductor business (Plasma Technology) and our quantum-focused business (NanoScience), together with the much smaller X-Ray Technology business. The group will aim to 'fix, improve, and grow' a business where margins are languishing at 0-4%.
The company will target growth by focusing on fewer markets and a sharpened product portfolio, tackling key areas where improvement is required and delivering a step change in operational and service performance.
Over the medium term, the company is targetting organic growth of 5%-8% CAGR, adjusted operating margin improvement to 20%+, cash conversion of over 85%, R&D investment of 8%-9% of revenue, and a strong ROCE. In the near term, the company expects to make ‘good constant currency progress’ in the full year ending March 2025.
Source: Bloomberg