I have held Renishaw since October 2011, when I was lucky enough to buy it on a dividend yield of about 4.5%. Since then, the dividend per share has risen at over 6% on a CAGR basis and my dividend yield on book cost is now 6.9%. Renishaw eliminated its dividend for 2020 but has reinstated it at its prior level. Cash is building up on the balance sheet and Mr. Market likes the company.
The share price recently peaked at an over 700% gain for me with recent froth. It's also on course to pay me 51.3% of my cost back in dividends alone if I assumed a full year dividend of 60p. On a total return basis (simply adding up the cash dividends rather than reinvesting them, so this will understate the return), Renishaw has delivered a c.24% CAGR since purchase. My only regret is not buying more shares!
A large part of the return did come from fundamental business progress, but there has also been a re-rating. Despite the healthy dividend growth, the dividend yield is now around 1%. Renishaw is on a free cash flow yield of 2.5%, which isn't too bad, but is on a part with other highly rated companies I hold such as MasterCard, PayPal and Spirax Sarco Engineering. Many have felt recently that Renishaw was too highly rated and sold down their positions accordingly. I have never sold any shares.
Late last year, one Berenberg analyst was quoted on Citywire:
He highlighted the group’s ‘market leadership, founder-led, high insider ownership, net cash balance sheet, and exceptional margins of 30% and return of 40% in good markets’.
‘Crucially, we also do not expect the stock’s strong momentum to fade in the near term,’ he said.
‘Our full year 2021/22 forecasts sit 8% and 22% ahead of consensus with history suggesting a two-year upgrade cycle is on the way.’
He said ‘billions in value’ could be added through the group’s novel Parkinson’s disease treatment and ‘additive manufacturing’ operations.
I took comfort that, if Mr. Market seemed to rate Renishaw so highly, its potential in these areas might mean it would 'grow into' its valuation. And I am something of a buy-and-hold investor. Why chop and change willy nilly?
Then, of course, we had the recent news that the company's founders were selling their combined controlling interest in the company, as they still hold more than 50% of the shares.
Any thoughts on what might happen from here?
If we have a single purchaser who acquires their shares then they will have a controlling interest in the company. The shares could remain listed but I assume it's unlikely? There was already a controlling interest but that was somewhat different given that it belonged to the founders and their approach was well known. It's also somewhat complicated as I understand Renishaw had qualified for FTSE 100 entry.
I am not sure how Renishaw's R&D culture and long-term approach will be maintained. Might it fit snugly somewhere in Berkshire Hathaway? Private equity and juicing the balance sheet would be a bit of a nightmare - I am sure the founders are aware of the risks...
I will be sad to see Renishaw go. If it is held privately or as part of a conglomerate then I will be sad to lose my shares!