Shares in Oxford Instruments (LSE: OXIG) opened down by almost 30% this morning, after the nanotechnology specialist slashed its profit forecast for the year.
The problem is Russia. According to the firm, recently-tightened Western sanctions against Russia now mean that previously-signed orders cannot be fulfilled, meaning that they will not be converted to sales and will not generate planned revenue.
As a result, Oxford Instruments is now assuming that no sales can be made to Russia in 2015 or 2016.
Japan is causing problems, too — Oxford had forecast a recovery in sales this year, but so far it hasn’t materialised.
Profits down
Oxford Instruments now says that adjusted pre-tax profit for the current year will be around £35m. My calculations suggest that is around 20% lower than the latest City forecasts for the firm.
To help cut costs, the group is considering closing certain sites and making staff redundant, changes which Oxford says should produce an annual cost saving of £6m from next year, for a one-off cost of £5m in the current year.
The decision to make such substantial cuts suggests to me that the firm doesn’t expect a dramatic recovery next year, although today’s statement says that the group is expected to grow next year.
Looks pricey to me
Big falls in a firm’s share price can sometimes be good buying opportunities, but in this case, I’m not sure.
My rough calculations suggest that forecast earnings per share for the current year could fall to around 48p, based on today’s revised profit guidance.
This leaves Oxford Instruments on a 2015 forecast P/E of 16.5, with a prospective yield of just 1.7% — assuming the dividend isn’t cut. That doesn’t look like a bargain, to me, given slowing growth prospects.
The dividend could come under pressure, too — Oxford Instrument’s net debt rose to £137.5m last year, following the acquisition of Andor Technology. This has left the group with net gearing of more than 100%, and the debt repayments could become a burden if the weak cash flow seen in the first half of the year has continued during the second half.
Wait a little longer
Like buses, profit warnings often come in threes, as a company’s directors gradually admit the full scale of the problems they face.
I suspect that Oxford Instruments may yet get a little cheaper, and I would not rush to buy more shares at today’s price.