Scientific-instrument companies are a global success – here's how to play them
Companies delivering scientific instruments – products to measure and analyse our world – are crucial to sectors ranging from telecommunications to pharmaceuticals. Dr Mike Tubbs picks his favourite stocks in the sector.
The scientific and technical-instrument subsector provides essential analytical and measuring tools to a wide array of industries – from biotechnology research and development (R&D) to the testing of equipment for 5G mobile-network communications and sub-micrometre metrology for precision manufacturing. This breadth helps insulate the instrument sector from cyclical downturns in any one of the areas it serves.
Take Britain’s Judges Scientific, for instance. Worth £400m, it is an interesting UK example of a broadly based instrument company. Judges’ product range covers university engineering laboratories, electron-microscopy accessories, fire-testing equipment, textile-testing instruments, computer-controlled testing of soils and rocks, and optical-fibre testing. The stock has quintupled since September 2016 – an example of several excellent investments in this area.
The global success stories
The global leader in this field is Thermo Fisher Scientific, whose market value is around $175bn, marking a threefold increase since 2016. Thermo Fisher Scientific’s products include analytical instruments, biotech equipment and consumables (items used up in medical testing, such as antibodies), drug-development services and general laboratory equipment.
Agilent, an analytical-instruments group spun out of Hewlett-Packard, is the second-biggest with a market capitalisation of $37bn; its value has also almost tripled in the past five years.
Other successful global brands include Shimadzu, a £7.5bn market-value Japanese company with a product range covering analytical and measuring equipment, medical systems and instruments for optical, hydraulic, vacuum and aircraft applications.
PerkinElmer is a $14bn US company supplying instruments, consumables and software for sectors ranging from biopharma and food safety to animal health and mining. Shimadzu’s shares are up 2.6 times since September 2016 ; PerkinElmer’s nearly 2.5 times.
Then there is Illumina, the world leader in genetic sequencing. The Covid-19 epidemic has shown how important that is for identifying different strains of virus. Illumina dominates the high-end sequencing market where machines can cost up to $1m. Another US firm dominating a niche is Intuitive Surgical. Intuitive makes robotic-surgery systems and instruments. A surgeon sits at a screen using controls to carry out keyhole surgery.
Intuitive has installed over 5,500 of its da Vinci robotic-surgery systems in hospitals worldwide and its machines have been approved for a range of different operations. Many surgeons have been trained on da Vinci machines and this, along with the large installed base, prevents potential rivals gaining a foothold in the market.
Our home-grown stars
In Britain there are three main classes of instrument company. Firstly, we have the well-established larger instrument companies with substantial overseas sales. They are typically in the FTSE 250 mid-cap index and tend to expand mainly through new products, but also make occasional acquisitions.
Secondly, we have smaller companies of this type with lower overseas sales and market caps below £500m and, thirdly, smaller companies that mainly grow by making several small acquisitions to expand their product range and market reach. The smaller ones are listed on Aim, the junior market of the London Stock Exchange.
Oxford Instruments, with a market cap of £1bn, Renishaw (£4.2bn), Spectris (£3.8bn) and Spirent Communications (£1.5bn) are good examples of FTSE-250 companies in the first category. In the second category we have EKF Diagnostics (£307m) and Kromek (£70m), with Judges Scientific (£400m) and SDI Group (£172m) in the third category.
Oxford Instruments provides tools to analyse and manipulate materials down to the atomic level; one application for its products is electron spectroscopy, a process helpful for identifying environmental contamination.
Renishaw is a world leader in high-precision metrology for manufacturing industries and healthcare, while it also specialises in three-dimensional metal-printing technology. Spectris provides instruments, test equipment and software for a wide range of industries.
Spirent specialises in the testing and security of wireless networks and infrastructure; it is crucial to the roll-out of 5G mobile-networks and devices. EKF Diagnostics focuses on diagnostic instruments both for central laboratories (ranging from clinical chemistry to infectious disease tests) and for point-of-care testing (for conditions such as diabetes).
Kromek makes a wide range of personal and environmental radiation detectors for different types of nuclear radiation. SDI Group’s products range from scientific digital cameras to electrochemical sensors for use in the food and beverage sectors.
So much for the pure plays. Beyond these shores there are several substantial listed companies with at least 50% of their total sales coming from instruments, notably Tecan of Switzerland (worth CHF4.7bn) and Mettler-Toledo International of the US ($26.7bn).
Mettler supplies the laboratory, industrial and food sectors with products ranging from microbalances (scales to weigh extremely small objects) to gas analysers. Tecan specialises in laboratory automation and molecular diagnostics.
Then there is JEOL of Japan, with a market cap of £1.3bn. It makes nearly 70% of its sales from scientific instruments. JEOL’s products include electron microscopes and electron-beam lithography for semiconductor manufacture.
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