Last Update 16 Dec 25

RSW: Margin Progress And Dividend Growth Will Underpin Balanced Medium-Term Outlook

Narrative Update on Analyst Price Target

Analysts have raised their price target for Renishaw from £24.50 to £35.30 per share, reflecting greater confidence in the company's ahead-of-plan EBITA margin improvement and upgraded medium-term earnings forecasts.

Analyst Commentary

Recent research updates highlight a more constructive stance on Renishaw's medium term prospects, driven by faster than expected progress on profitability and upgraded earnings assumptions.

Bullish Takeaways

Bullish analysts view the sizeable increase in the price target as evidence that the market is starting to better reflect Renishaw's improved EBITA margin trajectory in its valuation.
Upgrades of FY26 and FY27 EBITA forecasts by double digit percentages support a stronger medium term earnings growth profile, which can help justify a higher earnings multiple if execution continues to outperform.
Management's focus on operational efficiency and margin enhancement is seen as delivering ahead of plan, reinforcing confidence that the company can compound profitability even in a mixed macro backdrop.
The improved margin outlook reduces downside risk to future cash flows, which bullish analysts argue should narrow any valuation discount versus higher quality industrial technology peers.

Bearish Takeaways

Despite the higher price target, some bearish analysts maintain more neutral ratings, suggesting that much of the near term margin improvement may already be reflected in the share price.
There is caution that the upgraded FY26 and FY27 forecasts could prove optimistic if end market demand normalizes or if cost savings are harder to sustain over time.
Execution risk remains around maintaining ahead of plan margin gains while still investing adequately in innovation and growth, which could pressure profitability if not carefully balanced.
Valuation sensitivity to any slowdown in EBITA growth leaves limited room for disappointment, with bearish analysts wary that a high quality premium may cap further multiple expansion.

What's in the News

Renishaw plc proposed a higher final dividend of 61.3 pence per share for Fiscal Year 2025, up from 59.4 pence in FY 2024, reinforcing confidence in the company’s cash generation and capital return policy (company announcement).
The proposed FY 2025 final dividend will be payable on 5 December 2025 to shareholders on the register as of 31 October 2025, providing clearer visibility on near term shareholder returns (company announcement).

Valuation Changes

Fair Value remains approximately £36.91 per share, indicating no revision to the intrinsic value estimate.
Discount Rate is unchanged at 8.67 percent, implying no change in the required return on equity risk.
Revenue Growth is effectively unchanged at around 5.26 percent per year, suggesting a stable medium term top line growth outlook.
Net Profit Margin is unchanged at roughly 16.34 percent, indicating no material change to long term profitability assumptions.
Future P/E is unchanged at about 25.10x, indicating no adjustment to the forward earnings multiple applied.

Strong semiconductor market performance and aerospace investments are expected to boost Renishaw's revenue and future growth.
Strategic focus on emerging markets and innovative technologies aims to increase market share and enhance profitability.
Uncertainty in the semiconductor market and regional challenges could impede revenue consistency and profitability, while unprofitable segments and supply chain issues may strain net margins.

Catalysts

About Renishaw

An engineering and scientific technology company, designs, manufactures, distributes, sells, and services technological products and services, and analytical instruments and medical devices worldwide.What are the underlying business or industry changes driving this perspective?

Renishaw is seeing a reversal in the semiconductor market's outlook due to strong sales of encoder products and a growing order book, which is likely to positively impact future revenue growth.
There is positive momentum in aerospace and investments in hybrid automotive sectors, suggesting an increase in demand for Renishaw's products, which might boost revenue.
Renishaw's focus on emerging markets, particularly with CMM systems, is aimed at increasing market share rather than relying solely on market growth, which could enhance future earnings.
The company is investing in IT transformation and automation at their manufacturing sites, potentially leading to increased productivity and improved net margins.
Strategic initiatives in emerging businesses with high growth potential, such as neuro and additive manufacturing, are expected to contribute significantly to future profitability and earnings.

Renishaw Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Renishaw's revenue will grow by 4.6% annually over the next 3 years.
Analysts assume that profit margins will increase from 13.9% today to 15.4% in 3 years time.
Analysts expect earnings to reach £123.8 million (and earnings per share of £1.65) by about September 2028, up from £97.6 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as £140.6 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.1x on those 2028 earnings, down from 23.6x today. This future PE is lower than the current PE for the GB Electronic industry at 29.1x.
Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.26%, as per the Simply Wall St company report.

Renishaw Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The uncertainty in the semiconductor market, with fluctuating customer orders and potential for abrupt changes, could negatively impact revenue consistency and future earnings.
The challenges faced by German and Taiwanese machine tool builders, with sluggish demand and regional differences, may affect sales and impact revenue growth.
Pricing pressure in the APAC region, particularly China, due to competition, could squeeze gross margins and affect overall profitability.
The company's continued cross-subsidization of loss-making segments, like medical devices, may weigh on net margins and overall group profitability if high growth potential does not materialize.
Supply chain quality issues, resulting in nonrecurring costs and disrupted order fulfillment, may lead to unexpected expenses and could impact net margins if not effectively managed.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of £31.356 for Renishaw based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £43.0, and the most bearish reporting a price target of just £23.8.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £802.6 million, earnings will come to £123.8 million, and it would be trading on a PE ratio of 23.1x, assuming you use a discount rate of 8.3%.
Given the current share price of £31.75, the analyst price target of £31.36 is 1.3% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

RSW: Future Margins Will Be Supported By Improved Operational Execution