This is about Renishaw, a UK company making high-precision measurement tools for chips, planes, and medical devices—like selling shovels to gold miners. Fund manager Matt Tonge thinks the firm has long-term strength but suffers from customer investment cycles, causing volatile results. He likes its founder culture: heavy R&D spending (£800 million over 9 years) and ignoring Wall Street. Key holdings: Renishaw (£690 million revenue, founders own ~50%); Hexagon (Swedish rival in precision measurement); Apple (known customer, unnamed).
Renishaw is a supplier specializing in high-precision measurement and manufacturing systems, serving fast-growing end markets such as semiconductors, robotics, and medical devices. The core thesis is that the company occupies a unique position in precision tools through its "picks and shovels" model
Matt Tonge (Portfolio Manager at Liontrust Asset Management) deconstructs Renishaw—a UK-based company specializing in high-precision measurement and manufacturing systems. The core thesis: Renishaw serves as a "picks and shovels" supplier to high-growth end markets such as semiconductors, aerospace, and medical devices. Its business model is highly dependent on customer capital expenditure cycles, but sustained R&D investment and a founder-driven culture have built a deep moat. Matt Tonge argues that Renishaw's long-term competitive advantage stems from a founder culture of "continuously investing in products to drive competitive advantage," rather than short-term financial optimization—a culture that has delivered approximately 125x share price returns over 38 years, even with an initial valuation of 20x P/E.
Matt Tonge believes that Renishaw's core is "metrology" – the science of measurement, rather than mere tool manufacturing.
Matt Tonge notes: "If you listen to analyst conference calls, they are always asking when semiconductors will recover – because that is the only thing they can model with relative accuracy."
Matt Tonge believes that Renishaw's revenue is essentially "non-recurring but repeatable" — the products are not prone to wear, yet existing customers continue to purchase new equipment.
Matt Tonge emphasizes: "What drives Renishaw's revenue is capital expenditure — new companies building factory equipment generate large sales."
Matt Tonge believes that Renishaw’s success is rooted in the engineering culture of its founder, David McMurtry — sustained investment in R&D, cultivation of internal talent, and a refusal to cater to capital markets.
Matt Tonge points out: "If you were a private equity firm, you could buy it and say, ‘R&D will only be 10% from now on’ — that would release a lot of profit. But that’s not what the founders want."
Matt Tonge believes Renishaw’s moat stems from three elements: sustained R&D investment, a global technical support network, and customer switching costs.
Matt Tonge adds: "They do mention low-cost competition from China, but if you manufacture in the UK, trying to win on price alone won’t work."
Matt Tonge believes that the core of investing in Renishaw lies in assessing whether its current large-scale investments will generate returns over the next 5-6 years, rather than fixating on short-term cyclical fluctuations.
Matt Tonge emphasizes: "The key question is: Have these investments changed the nature of the company? Has competition intensified? Can R&D spending still generate returns? We tend to believe the latter."
| Position | Analyst View | Key Data |
|---|---|---|
| Renishaw | Bullish (long-term hold) | 2023 revenue £690 million; target 20%+ EBIT margin; 13.5% cash flow return over the past 10 years; founder ownership ~50% |
| Hexagon | Competitor | Listed in Sweden, major competitor in precision measurement |
| Carl Zeiss | Competitor | Precision measurement field |
| Heidenhain | Competitor | Position measurement (encoder) field |
| Fanuc | Partner/Customer | Machine tool manufacturer, Renishaw probes installed on its equipment |
| Apple | Customer (not explicitly stated) | Well-known customer in consumer electronics |
| Siemens | Potential acquirer | Expressed acquisition interest in 2024 |
| Bruker | Competitor | Medical/analytical equipment field |
| Thermo Fisher | Competitor | Medical/analytical equipment field |
1. Matt Tonge believes Renishaw’s moat stems from a founder-led culture of "continuous investment in products to drive competitive advantage," rather than short-term financial optimization. The company has accumulated £800 million in R&D spending over the past nine years (13-14% of sales), holds 1,500 patents, and files approximately 100 new patents annually.
2. Matt Tonge points out that Renishaw’s revenue is inherently "non-recurring but repeatable"—products are not easily worn out, yet 70-80% of revenue comes from existing customers. This means the company’s growth depends on customers’ new capital expenditure rather than replacement demand.
3. Matt Tonge emphasizes that Renishaw’s order visibility is only about two months, leading to persistent earnings volatility. "As a listed company, this means their results are always swinging between beating expectations and missing them."
4. Matt Tonge believes that investing in Renishaw requires a "counter-cyclical" strategy—"When it looks really cheap, that’s often the earnings peak, and you want to sell rather than buy; and vice versa." 2018 was the peak profit year, and profits have not reached new highs in the six years since.
5. Matt Tonge notes that Renishaw’s asset utilization is deteriorating—cash flow return on assets was 19% in 2018, but is forecast at only 6.5% for 2024. The core question is whether the current large-scale capital expenditure (expanding factories by 50%) can generate sufficient sales returns in 2026-2028.
6. Matt Tonge believes that the founder ownership structure of approximately 50% is both an advantage and a risk. The advantage is that management is not pressured by short-term capital markets; the risk is that the founders will eventually exit, and new management may change capital allocation strategies (e.g., cutting R&D, increasing buybacks).
7. Matt Tonge summarizes a long-term investment lesson: "If you bought Renishaw at 20x P/E at its IPO and held for 38 years, you still achieved a return of about 125x. Over the long term, valuation matters less—what matters is competitive advantage and return on capital."
8. Matt Tonge points out that additive manufacturing (3D printing) is Renishaw’s biggest uncertainty. This division, established nine years ago (2015 to present), has yet to disclose revenue separately; analysts estimate it at around £30-40 million. In 2020, it underwent a £17.5 million restructuring. However, the company’s latest software innovation (the laser can follow the scraper’s movement) has improved production efficiency by approximately 100%, which could become a breakthrough point.