Renishaw plc (LON:RSW) could potentially see “billions” added to its value through a successful outcome for its Parkinson’s disease treatment and its additive manufacturing operations, according to analysts at Berenberg, who have initiated coverage on the stock with a ‘buy’ rating and 5,700p target price.
In a note on Thursday, the broker said the precision tools maker had multiple positive qualities including “market leadership, founder-led, high insider ownership, net cash balance sheet and exceptional margins (c30%) and returns (c40%) in good markets”, and they did not expect the “strong momentum” in the company’s stock to fade in the near term.
“In prior cycles, consensus has consistently underestimated the speed of recovery at Renishaw and we believe this time is no different. Key end-markets are showing signs of a recovery, which we expect to drive a sequential improvement in Renishaw’s sales”, Berenberg said.
Analysts also said they did not expect coronavirus to derail ongoing tends towards higher quality, safer and more environmentally friendly products, all of which they said will drive demand for Renishaw’s metrology equipment, adding that China still represented a “major growth opportunity, while any post-pandemic nearsourcing of supply chains could spur additional demand”.
“Competitive pressures in the metrology industry do appear to have increased in recent years but with sector-leading [research and development] investment (c15% of sales), we believe Renishaw can sustain a compelling through-cycle sales [compound annual growth rate] of 5-10%”, the broker said.
Looking ahead, Berenberg said Renishaw has developed a range of neurological products including a robotic system and a novel drug delivery device that is being trialled in what it said is a “potentially game-changing” treatment for Parkinson’s, while the firm also has another major long-term investment through its additive manufacturing business.
“It will likely take 10-15 years but, if successful, we believe these two businesses could add over c£500mln in [earnings] and billions more in value to the group”, the broker said.
Shares in Renishaw jumped 4.9% to 5,135p in mid-morning trading.