Oxford Instruments shares should be sold

by Bella Palmer

Oxford Instruments shares should be sold, said the Sunday Times’ Inside the City column. The high-tech device maker spun out of Oxford University in 1959 needs to operate right on the bleeding edge of technology, and often depends on acquisitions to stay relevant – but not even that strategy is guaranteed to deliver reliable profits. The company has suffered two profit warnings in the last year, blamed on the sanctions on Russia and China’s economic slowdown.
Although OxInst is trading at an attractive discount to rivals on a price-to-earnings basis, the balance sheet is a worry. With the squeeze being felt from weak Japanese demand, slowing industrial sales and lower prices for superconductor parts, management cut 7% of staff last year and recently negotiated better credit terms from lenders. Broker Jefferies has warned that the company’s leverage ratios could get close to the higher level its banks have allowed, which any worsening of the Chinese economy, for example, will land OxInst in big trouble.

Questor in the Sunday Telegraph warned about not diving back into the mining sector. The Chinese economic slowdown has dragged mining sector stocks to six-year lows, which has understandably attracted bargain hunters. While iron ore, the source of most profits in UK-listed miners, has seen a price bounce, the metal could soon retreat again due to supply and demand issues. The private Roy Hill mine in Western Australia is set to flood an already oversupplied market, meaning iron ore is forecast to wallow at $40 per tonne for the next year or so.

As well as this excess supply, the previous crucial demand for iron from China’s construction sector looks to be waning as recent housing data indicates a sizeable deceleration. With Glencore, Anglo American, BHP Billiton and Rio Tinto all gaining in recent weeks, the dividends on offer have attracted yield hunters, especially if metals prices regain their health. However, there is a big risk that prices will fall rather than rise, which outweighs any potential mining gains.

Shares in Redcentric are worth buying for long-term growth, Midas advised in the Mail on Sunday. Redcentric is an IT services company that helps firms get the most out of what the internet has to offer, providing data storage, software, internet telephony, setting up intranets, for all sizes of clients from Oxford University to Evans Cycles and government departments such as the Ministry of Defence and NHS. The group’s near-2,000 customers are large enough to need to outsource IT but not so big as to spend millions of pounds on buying and maintaining their own servers, while public sector clients, who used to turn to giants such as IBM, now often buy British.

After CFO Fraser Fisher moves up to the top role next month he aims to deliver at least 10% annual growth organically and from acquisitions. The IT services sector is highly fragmented in the UK, so Redcentric has hundreds of small competitors, some of which are worthwhile acquisition targets, such as loss-making Calyx, bought in April and already expected to be profitable this year. Analysts expect profits to rise 18.7% this year

This article is for information purposes only.
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