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Renishaw - The Future is Unpredictable

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ADrunkenMarcus
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Renishaw - The Future is Unpredictable

#393293

Postby ADrunkenMarcus » March 7th, 2021, 11:13 am

Renishaw has a superb long term record. A recent article claimed shareholders had enjoyed a 200-fold return since listing in 1984.

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!

Best wishes

Mark.

doug2500
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Re: Renishaw - The Future is Unpredictable

#393303

Postby doug2500 » March 7th, 2021, 12:22 pm

A great result for you, and well deserved.

For me it will remain on the 'look what you could've won' list. It just always looked expensive and I always hoped I'd get a chance on a pull back.

Some of my best investments have been the expensive ones e.g. TUNE BVXP but is it a good strategy, or have I just been lucky with the way markets have rewarded these companies for the last few years and the next few may reward a different set e.g. value?

I think I'm on the path of quality now so suspect that's what I'll continue to try and follow.

Dod101
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Re: Renishaw - The Future is Unpredictable

#393321

Postby Dod101 » March 7th, 2021, 1:02 pm

It would surely not be a typical buy for BH because Buffett likes to leave the original owners in place and anyway likes I think to own such companies 100% (He could of course do that) The price might be too rich for him anyway. I wonder if there will be many buyers at the current market price?

The obvious buyer would be private equity but the founders will not want that because they would probably just asset strip. I would not be surprised if they passed their shares on to a family trust despite the fact that they have said that they have rejected that.

Dod

ADrunkenMarcus
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Re: Renishaw - The Future is Unpredictable

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Postby ADrunkenMarcus » March 7th, 2021, 9:07 pm

Thanks Doug2500 and you asked the million dollar question!

have I just been lucky with the way markets have rewarded these companies for the last few years and the next few may reward a different set e.g. value?


Dod, if the shares pass to a family trust and Renishaw remains listed then I will be happy. I bought intending to hold for the long term and would very much like to continue my ownership.

Best wishes

Mark.

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Re: Renishaw - The Future is Unpredictable

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Postby Spet0789 » March 7th, 2021, 10:50 pm

Not quite as good as you! I bought in 2016 at 1650 and sold out in two tranches at an average of 5200.

I love the company but Mr Market’s price became too tempting and I was worried about the overhang.

For me the most rational outcome given the founders’ objectives would be to split their stake between a family trust and an employee trust. They don’t strike me as people who need the money and this would surely best secure the legacy they are looking to achieve.

Neither BH nor PE will buy at this price. IMO would need to be below £40.

ADrunkenMarcus
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Re: Renishaw - The Future is Unpredictable

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Postby ADrunkenMarcus » July 7th, 2021, 9:53 am

Good news this morning that Renishaw has had a strong final quarter in the year ending 30 June 2021, so I await their final results with interest. Turnover and profit estimates have been revised up. The 60p a share dividend paid for 2019 was eliminated in 2020 but swiftly reinstated: the interim which was paid in April 2021 suggests it was reinstated at the same level. I expect to see future growth.

And private equity are not getting their hands on it. :D

Best wishes

Mark.


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