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  • Analyst Note – Renishaw. ‘What cost of insuring against future forex downturns?’

    A financial forecast, like a weather forecast, is not always going to be positive. A business might face significant headwinds including unfavourable foreign exchange rates which affect the purchase price of its exports. Additionally it can have to overcome the hurdle of tariffs from overseas trading partners, in which instance it has either the option of raising the price of goods to reflect the additional cost of selling to that country or absorbing the cost of tariffs and posting it as a business expense.

    Engineering company Renishaw in its Half Year results stated it had addressed US tariffs on imported goods with higher pricing, comprising 1.4% of growth reported – tariff costs of a £15m offset by surcharges and pricing, with only a small decline in profit margin.

    Renishaw’s revenue forecast for the year was for between £740m and £780m, with adjusted profit before tax predicted to fall between £130m and £157m.

    Statutory vs Operational Profit

    While its profit before tax increased 11.5%, a record for the period, statutory profit before tax actually fell 20.0%, representing £18.0m in “redundancy and impairment costs, relating to previously announced restructuring activities, and other one-off costs.” Operating profit grew 11.4% from £51.6m in H12025 to £57.5m in 2026.

    Although operating margin grew just 0.6%, overall revenue grew 7.1% over the figure for the same period in 2025, from £341.4m to £365.6m in H1 2026. Although the cash flow conversion fell 32% from 100% in 2025, to 68%, the business asserted its

    “Strong balance sheet with cash and deposit balances of £249.9m (FY2025: £273.6m), reflecting full-year dividend, working capital investment and restructuring outflows.” 

    Admin expenses over revenue were 2.3% greater yoy and comprise “continuing third-party support and maintenance costs in relation to our ongoing IT transformation, which will lead to productivity benefits in future years.” 

    Distribution expenses grew 6.6% and were attributable to higher pay and benefits. This being said, it posted 4.4% of “organic margin growth” from a combination of fixed cost reduction, productivity initiatives and operational synergies.

    Playing with Financial Instruments

    This organic growth margin was 4.4% higher than the growth at actual exchange rates, mostly thanks to an £8.0m reduction in forward currency income compared to FY 2025.

    It explains, ”The preceding period witnessed significant value-add from contracts which locked in favourable exchange rates” after a period of volatility in currency markets “arising from the September 2022 UK ‘mini-budget’.

    Swaps and futures are financial instruments a business can use to ensure its financial forecast is rosy. Trading these instruments, though, on the secondary market can result in a loss if the mark-to-market value being demand-led can result in a loss where institutional trading levels cause volatility, or price fluctuations, where it is difficult to post a gain relative to the transaction cost and the margin traded against the contract value.

    On the other hand, where constant currency revenues are reported, it is likely that currency futures were used to help protect against unfavourable forex rates. 

    And interest rate swaps (IRS) can help the business to “hedge” against future disadvantageous borrowing rates, which are usually pegged to the Bank of England (BOE) base rate. Where ‘swapping’  a borrowing rate with your financial counterparty offers gains, from a pricing perspective they may benefit from a lower yield that the resale value of its own debt might enjoy an increase – bonds are priced in inverse relation to the yield, which represents the value-at-risk in relation to the repayment of principal.

    Renishaw cites 4 structural growth drivers:

    • increasing precision of manufacturing services.
    • rising industrial automation to address skills deficits
    • electrification and digitalisation of industries
    • decarbonisation of manufacturing.

    Globally, its salesforce utilises new technologies, and customer demand-side targeting, to gain market share, with key business divisions powering growth in the semiconductor, defence and electrification arenas.

    Position encoder products witnessed strong growth over the last reporting period, attributed to nascent metrology and additive manufacturing systems and software. “Pleasing growth” was seen in new sensor product lines, e.g. enclosed optical and inductive position encoders.

    If you break the H1 revenue gains into business segments, Position Measurement orders book grew from Q1 2026 £52.1m to £58.4m for the Q2 reporting period. Forward orders in Industrial Metrology represented a revenue growth from that segment from £102.0m to £110.1m; and from the Specialised Technologies segment from £16.7m to £26.3m.

    The H1 2026 report states “Growth was broadly based, with all three reporting segments delivering growth, and Specialised Technologies performing particularly strongly.

  • Interview with Quilter Financial Planner

    Jagdeep Singh and I had a hugely rewarding chat about their service offering, comprises matching clients with appropriate investment portfolios based on their investment objectives and risk tolerance.

    The first stage of the process is an internally generated questionnaire, assessing how clients feel about risk and looking at their expectations and cash-flow requirements. Are they looking for income, in which case they are chasing dividend yields, or are they seeking value-add to trading stocks commensurate with their long-term growth expectations?

    Establishing the risk-reward ratio

    When assigning clients baskets of investments, the financial planner has to interrogate the overhead of an actively managed fund – transaction fees and management costs, for example. Potential investors have to ask themselves, “What’s the potential growth of that fund, and will be be appropriate for me?”

    Singh stresses that swaps and futures, and other instruments used to hedge against the risk of certain bank holdings on their balance-sheet, are “not financial instruments recommended to retail investors,” that are largely deployed to lock in a more favourable borrowing rate on credit products with counterparties (interest rate swaps or IRS); or trade on growth expectations for commodities and foreign exchange (forex).

    In the context of portfolio allocation, “crudely, up to 60% of the invested sum is in equities, and 40% in bonds. It depends if there’s lifestyling applied – the fund, which reduces the exposure of the portfolio in the 10-15 years pre-retirement, will invert the ratio meaning 40% is applied to equities and 60% to bonds.

    The trade-off is that bonds demonstrate less volatility, but also less growth in their tradable value.”

    This re-allocation of portfolio apportionment is termed the ‘Glidepath to Retirement’.

    Duration of Capital Investment

    When questioned about lock-in clauses, Singh says that a minimum investment period of 5 years should be treated as standard, that clients should not expect to withdraw their capital before the end of that period and that they should not invest more of their income than they can afford, which is why in advance they establish overhead cost of living and allocate a capital buffer to forestall emergency costs and/or financial hardship situations.

    Of course, the option still exists of taking your pension fund as one lump sum. Apparently pre-Budget when the Labour Party came in, a lot of people applied to take the cash for fear the Labour Party would revoke the tax-free cash option – which it did not do. But Singh points out that a bank savings account deposit can still be liable for income tax – “Better to stay invested so you can capitalise on growth, where there’s no need to take the money.”

    Different Buckets

    In terms of the service offering, the ‘Model’ portfolio is analysed on a quarterly basis, whereas those with tailored portfolios will predicate return on historic performance of funds contained within it and these are analysed at the year end. You can tender individually to buy into specific funds, and both options have an opt-in for ESG ratings to be incorporated – “We do both scenarios in ESG.”

    When considering apportionment to actively managed funds, obviously they consider the price to equity (P:E) ratio, past performance and management fees. Also factor in the F:E ratio, representing the quality of that fund compared to its peers – what growth level it returns vs the benchmark.

    Core factors determining apportionment are a consistent track record and a favourable comparison with historic volatility – what is the correlation with overall market volatility and does the manager generate a positive gain through trading volatility? How are its holdings marked to market? These so-called beta measures are applied when considering including a fund in one of the investment portfolio options.

    For an initial consultation if you are considering a long-term investment as part of your plan for retirement, contact

    Jagdeep.singh@quilterfa.com

    07342 412630

    or make application via the online portal where you can search for his individual investment advisor profile.

  • Barratt Redrow analyst note

    Following its financial update for the 17-week period from 30 June 2025 to 26 October 2025 (the ‘period’), issued on 5 November 2025, the stock is down -4.70% over the week commencing Monday 8th December.

    With a strong forward orders book and integrated sales divisions, thanks to the Barratt-Redrow merger completed last year, the company has a clear blueprint for future expansion and is targeting an ambitious number of 22,000 home completions per year.

    All comparatives are to the 17-week period from 1 July 2024 to 27 October 2024 unless otherwise stated.

    Trading performance 

    The forward order book, including joint ventures, totalled at 10,669 as of 27 October 2025, compared to 10,706 homes over the equivalent period of 2024; net value of £3,281.4m for 2025, vs a comparable figure of £3,206.0m in 2024. This indicates that new homes sold have a higher realised value, although the company iterates its commitment to affordable housing, stressing the important role of the government in providing growth-enabling decisions and in timely consideration of planning permission on undeveloped sites.

    The company said in a statement coinciding with the earnings report said,

    “Based on unchanged guidance for FY26, at 26 October 2025 the Group was 60%3 forward sold with respect to FY26 private home completions (FY25: 62%4 forward sold), of which 64% are either completed or exchanged (FY25: 65%). “

    Its land bank is comprised of 87,000 owned plots with an additional 12,300 plots contracted or controlled. It stated its expectation that land acquisition to be in line with replacement levels, alongside a growing ratio of the current level.

    As of June 2025, a further additional c.145,000 strategic plots are available for development, “complemented by Gladman’s promotional land portfolio of c. 114,000 plots.”

    Including Joint Ventures (JVs), the group posted 228 net private reservations per week, (FY25: 225), with a net private reservation per week of 0.572 (FY24:0.59). operating from a mean of 402 sales outlets (FY 25: 443). Streamlining its operations has been a positive consequence of operational synergies between wholly owned business divisions.

    In a forward-looking statement, the group emphasised, “We remain on track to deliver £100m of cost synergies with confirmed synergies now at £80m, an increase of £11m from the £69m confirmed at 29 June 2025. An incremental £45m of cost synergies will be delivered in FY26.”

    . 

  • High Rise on the FTSE100 20/09/25

    Centrica rose 6% over the week, Babcock International 6.2%. Let’s have a look at what’s driving these high equity returns.

    Centrica plans to bump investment in green activities by 50% from 2023-28, including energy security of supply and flexbility, renewable and low carbon generation, as well as customer offerings that support the transition to net zero, said the CEO in the annual report statement.

    They highlighted the net cash position vs free cash flow as supportive of growth positions in LNG storage and carbon capture technologies. The adjusted net cash position is £2858m up slightly yoy from £2744m in 2023. This reflects the contribution of expanding its operating base. The company describes itself as a “conduit” for energy security policy, with a key example being the February 2024 LNG supply deal with Repsol, also with the two natural gas purchase and sale agreements with Coterra Energy announced October 2024.

    As regards regulatory financial reporting standards under GAAPs, the company was forced to acknowledge a decline in free cash flow of £989m compared to £2207m in 2023, with also a decline in adjusted operating profit – £1.6bn vs £2.8bn in 2023. However its sustainability record indicates a long-term growth prospect. Centrica has already attained 30% green investment based on the EU’s Sustainable Taxonomy and publishes any deviations from official reporting guidance whilst remaining engaged with stakeholders’ policy feedback. It cites the installation of 1million smart meters in 2024 as part of a new Meter Asset Provider sideline, “providing the group with a steady source of income in years to come while still helping customers decarbonise.”

    Additionally the company highlighted acquisitions in “proven renewable technology generation”, namely wind and solar generators and acknowledged its loss-making Rough natural gas carbon-recapture project would need a costing review due to the exorbitant overheads in 2025 estimated at between £50m and £100m. They have already sunk £2bn into preparing the site for development but concede that “While the site plays an important part in the UK’s energy and price security, and can be a crucial part of the future hydrogen economy, making material losses is not sustainable on an open-ended basis,” and they promise investors to review their financial exposure with this in mind.

    Other more profitable expansions of its energy service offerings include a £70m investment in Highview Power’s Liquid Air Energy Storage in June, an the 20MW hydrogen peaker in Redditch.

    Its services offering has demonstrated an increasing level of customer satisfaction, the Chair highlighted in his statement that “Over the course of 2024, we’ve seen further progress in improving customer service in British Gas Services and Solutions. We’re also delivering an improved NPS, a key metric of customer satisfaction, in British Gas Energy.” NPS signifies a customer’s willingness to refer an engineer on the basis of home visit, assessed through individual questionnaires.

    He explained that in 2023 the installment of prepaid meters under warrant was paused on the grounds of affordability for customers, citing a “material risk of financial hardship,” although Centrica ried to mitigate the affordability barrier by investing in “a number of changes to our systems, processes, training oversight arrangements, and we remain committed to supporting our customers, particularly the most vulnerable.”

    In the context of debt relief, they spearheaded the “You Pay: We Pay” flagship scheme which 100% matches payments that eligible British Gas customers are finding difficult to pay into their account to decrease the outstanding balance. He points to the suggestion of a social tariff underpinned by data sharing as an alternative way of monetising delinquency or default in debt accounts.

    However, he also claims the company has voluntarily given £140m to support affordable energy initiatives since the beginning of the energy crisis, to beneficiaries including £20m in January 2024 to the British Gas Energy Trust.

    The financial year 2024/5 saw three phases of a share buyback program, starting with a £200m tranche in July 2024, then a £300m tranche in December 2024, culminating in a £500m repurchase of its own equity in February 2025, with the total value of share capital held by the company finalised at 25% of its total equity level.

    “Additionally, we returned share capital to investors in the form of dividends, which came to 4.5p at the end of 2024, inclusive of a 1.5p interim dividend outlined in July”.

    Babcock’s Annual Report for FY 2025 represents its first FTSE100 index listing after over 7 years absence. The company was pleased to announce revenue of £4,831m, of which underlying operating profit represented £363m, up from £238m in 2024, with underlying operating profit margin of 7.5%. It notes that Statutory Cash from Operations was £357m, down from £374m in 2024, but that the organisation found non-GAAP reporting standards to more accurately represent its financial position.

    Around 74% of Babcock’s revenue is from defence contracts, with 5% from civil nuclear. It points to a £10.4bn “contract backlog” of forward orders yet to be delivered. Its underlying free cash flow was £153m, with net debt levels excluding leases standing at £(101)m.

    The company’s key business divisions as follows:

    1. Marine – design, build and through-life support for warships and submarines, and associated weapons handling and launch systems; creation of secure military communications systems; and what is claims are “world-leading commercial liquid gas equipment systems.
    2. Nuclear – through-life complex engineering support to the entire UK submarine fleet; owner-management of infrastrcture including Devonport dockyard; UK civil nuclear new build, generation support and de-commissioning projects; other international contracts in civil and defence markets.
    3. Land – asset management and through-life support for complex military equipment as well as ongoing skills training for ground deployment; systems integration and engineering services in power gen, transport networks, and mining equipment.
    4. Aviation – flying training for UK’s Royal Airforce, French Airforce and French navy; through-life support of military flying assets and other air operation support “for government programmes, saving lives and protecting communities”

    The company says the average underlying operating cash conversion is higher than or equal to 80%, and highlights a number of innovations as follow:

    i) better alignment between project management, engineering and commercial functions to mobilise pipeline contracts, as part of Global Business Management System to ensure continuity and identify risk factors.

    ii) improved governance controls for bidding, strengthening the legal review process on tenders.

    iii) FY25 published first Supplier Assurance Handbook to mitigate procurement risk, “enhancing transparency by detailing our sustainability considerations, audit and development process.”

    iv) new AI functionality with capex developing Athena – “As we look to FY 2026, the program will focus on large-scale integration across the business, supporting our governance of costs and efficiencies.”

    v) In employee management, it has rolled out an Engineering Role Framework with on-the-job training in key competencies, developing a Production Support operative scheme to access a wider talent pool; apprenticeships in space systems and cyber security; and taking a leading role in the UK’s National Nuclear Strategic Plan for Skills.

    Wide Moats – the Investment Prospect

    • own initial assets, with long lifecycle
    • operational asset knowledge and capability transfer
    • strategic partnerships with high barriers to entry

    Looking ahead, FY25 saw a refocusing of the technology team, “establishing cross sector and country working groups for each of our strategic technology capability teams… These themes drive innovation, ensure our technology relevance and empower us to deliver cutting-edge, practical solutions.”

    Babcock CEO trumpeted an upgrade in the company’s medium-term guidance, and a 30% increase in full-year ordinary dividend as well as revealing a £200m share buyback program which will be rounded off in FY26.

  • Analyst note Costain

    Costain Group Annual Report states they “received prestigious recognition for our approach when we obtained the London Stock Exchange’s Green Economy mark.

    “This identifies companies that generate at least half of their revenue from products and services that contribute to the green economy. The mark is only held by around 6% of companies on the LSE.”

    Note that a £10million share buyback program concluded in November 2024. Over the previous financial year, cash from operations FY24 was £42.7m (FY23: £69.6m), “resulting from increased operating profits offset by year-end timings of certain cash receipts at the end of FY23 and FY24, together with some end of contract outflows in FY24.”

    The adjusted free cash flow in FY24 of £27.1m (FY23: £70.2m) was lower than the same period last year largely “due to the timing of year-end working capital and higher tax and expenditure payments” with internal adjustments as funding was diverted into updating infrastructure, requirements for new business systems; and increased cash flows on adjusting items, with turn on non-current assets offset against “reduced pension fund deficit contributions.”

    Liquidity considerations aside, the adjusted operating profit margin was 3.4% compared to 3.0% FY23 yoy, with 4.4% growth in H2 as Costain states it saw greater operating efficiency and productivity in the Natural Resources division, with higher marginal profits.

    Total revenue from transport fell from 943.1m in 2023 to 845.8m in 2024, at a higher operating margin of 3.5% from 3.0%. Road and rail takings fell, although integrated transport projects experienced expansion of 92.7% The net business forecast is for an optimistic 5% growth rate for FY 2025 after an initial target of 4.5% over the course of 2025.

    As regards sustainability targets, their Scope 1 emissions reported 4,772 down from 4,875 (-2.1%) and Scope 2 (-3..16%) was 888 down from 1,299. Scope 3 emissions saw just a 1% increase from 281,765 FY23 to 278,248 FY24. In terms of accountability, Costain reports that 100% of relevant contracts were working in accordance with PAS 2080.

    Its ambitious target is for a 6% yoy reduction in Scope 1 and Scope 2 emissions, the same percentage for the absolute emissions value. In some ways accepting the limitations of its capacity to cap emissions is preferable to mis-reporting it, which happened recently with UK energy company Drax, whose share price fell over 10% in a day immediately after regulators signalled an investigation into whether the provenance of wood chips for biomass pellets was actually sustainable, and the emissions reporting for the diesel ships transporting wood chips from the US did not comprise a Scope 2 or 3 emissions estimate.

    Costain is targeting a dividend payout of 3x adjusted earnings. Payments were resumed in FY23 with a full-year dividend of 1.2p per share for the year, in line with the pension payments required for the year under the “dividend parity arrangement.” The board has approved a final dividend of 2.0p per share.

    The company is transparent about its desire to capitalise on the problems caused by climate change, and highlights the risk-based opportunities for its diverse business lines –

    “There is a high potential in the water sector – the capacity of sewage needs to be increased to deal with additional strains placed on it by rainfall intensity coupled with increased demand,” and considering the enhanced “maintenance and modification to improve the drainage capacity or resilience of its assets.”

    It highlights the initiative of a carbon tracker which will provide unified measures of resource usage across different project lines, and demonstrate areas of improvement relative to industry benchmarking.

  • Last Week’s Financial Round-up 08/09/25

    Gold pricing reached a new peak above $3500, alongside an 8.10% expansion in equity from Fresillo, a Mexican silver mining company incorporated in the UK which was one of the week’s high performers and infrastructural investment represents an effective counterpoise to gold contracts.

    According to the Times, growth obstacles for UK listed companies comprising “tax rises, slowing wage growth and sticky inflation” are affecting several service providers.

    Bunzl, for example, which sells PPE and sanitary equipment to healthcare and health and safety providers, as well as packaging, was poised to take advantage of new overseas markets as M&A revenue and adjusted operating profit for the year increased 7.9% with conversions indicated 3.1% revenue growth on an 8.3% operating margin.

    In its annual report, Costain reported cash from operations in FY24 was £41.7mn, (FY23: 69.6mn), resulting from “increased operating profits offset by year-end timings of certain cash receipts at the end of year FY23 and FY24, together with some end of contract outflows in FY24.”

    The company cited the “timing of year-end working capital” as well as “higher tax and capital expenditure payments” on investment in new systems and “higher cash flows on adjusting items”, although meeting the pension contribution deficit may have a detrimental effect on liquidity.

    Inflation proxy indicators

    Indeed, the CPI for July stood at 3.8%, up from 3.6% for June. The RPI, excluding the costing change in fuel and energy, was 4.8% for July, an increase from 4.4% yoy growth for June. The Producer Price Index (PPI) provides forward-looking outlooks of upcoming price increases based on slack vs actively engaged capacity, and acts as a measure of manufacturing inflation.

    The Purchasing Manager Index (PMI) provides an indication of future orders and growth outlook based on forward-looking pricing on manufactures and services.

    Trump’s foreign policy this month have not affected appetite for US 10-year Treasuries, which were stable as the return on Treasury bills, which must be held for 10 years until maturity, increased by 1bp from 4.27to 4.28.

    The coupon paid out on UK 10-year gilts rose from a yield of 4.84 the preceding week to 4.90 correct as of 2 September, reflecting market speculation surrounding suggested tax cuts to be announced in the Budget on 26 November, which may contain a new wealth tax to meet the current spending shortfall.

    Note that the Sentix Investor Sentiment Index, published today on forexfactory, was at -9.2 vs a forecast of -2.2; whereas the forecast for August was actually positive, and forward-looking analysts put the prediction at 6.2 where the actual value, predicated on a diffusion index based on surveyed investors and analysts, was -3.7.