Investors tend to associate the most innovative companies of today with the US. However, there are many well-established and profitable businesses in the UK stock market, founded by British entrepreneurs, that are global leaders in the fields of science and technology. This week, Stephen Timoney, the Portfolio Manager of Killik & Co’s Mid Cap Equity Service (see box below), explores the past, present, and future of one of these high-growth businesses, Oxford Instruments. Please speak to your Adviser to find out more about this company, or the wider service.
Observing and manipulating matter at the molecular and atomic scale is essential to countless fields of scientific and commercial endeavour, from reducing the amount of metal used in razor blades, to building more efficient solar panels. Oxford Instruments provides the means to do just that: its world-leading product portfolio of niche nanotechnology instruments includes microscopes, scientific digital cameras, compound semiconductor fabrication equipment, and tools that manipulate the magnetic and temperature characteristics of research environments.
The firm was the first substantial spin-off company from Oxford University and remains one of the most successful to this day. The business was created in Northmoor Road, Oxford in 1959, in the garden shed of engineer Sir Martin Wood, and his wife, Lady Audrey Wood. From these humble beginnings, the couple laid the foundations of an enterprise that would become a pioneer in the production of powerful, superconducting magnets for use in scientific and, most famously, medical applications.
As the business graduated to successively larger Oxford premises – including, at one point, an old stables and slaughterhouse – Sir Martin progressed from making powerful magnets to achieving, in 1962, the production of the first superconducting magnet made outside the US. From there, the technology was further developed for applications in research and NMR spectroscopy. Ultimately, the firm managed to produce whole-body superconducting magnets, paving the way for the development of magnetic resonance imaging (MRI). This culminated, in 1980, in the first commercial MRI whole body scanner, manufactured at Oxford Instrument’s Osney Mead factory in Oxford, and installed at Hammersmith Hospital, London. Three years after this historic achievement, the business was floated on the London Stock Exchange.
In the decades that followed, Oxford Instruments developed a leading brand, reputation and market position, and its products became synonymous with the highest levels of quality and reliability in the industry. However, the company’s achievements in science and engineering were not always matched with commercial success. Although it produced the first commercial MRI whole body scanner, this market was ultimately commercialised, through royalty-free licences, by Philips and General Electric. While Oxford Instruments did form a joint venture with Siemens, to supply magnets to MRI scanner vendors, this was fully acquired by Siemens in 2004 for only £9m, a poor return in the context of an MRI market today that is worth over $5bn. The company’s lack of commercial progress was reflected in its share price which, by 2010, had advanced little since its flotation 27 years earlier.
It is only in the past ten years that Oxford Instruments has begun to harness the full profit potential of its world-leading brand, built on decades-worth of innovation. In that time, the business has enjoyed a more than four-fold increase in market value, which today stands at £800m. Significant progress has been made, most recently, under the stewardship of Ian Barkshire, an employee of Oxford Instruments for over 20 years and CEO since 2016. He has sharpened the commercial focus of the group and channelled the product portfolio towards high-growth markets, from autonomous and electric car manufacturing to quantum computing.
Oxford Instruments’ compound semiconductor manufacturing systems, for example, are critical to producing the higher speeds, larger capacity and improved energy efficiencies required in autonomous vehicles. Its atomic force microscopes and electron microscopy imaging tools are essential to the development of the new composite materials and super alloys that are being used for such applications, and for the analysis, at the nanoscale, of new higher-capacity lithium batteries for use in electric vehicles.
At the same time, breakthroughs in the understanding of sub-atomic particle physics – known as quantum mechanics – are opening up radical new areas of technology. These offer the potential for vast increases in computational speed, new paradigms for secure information transfer and unprecedented sensor sensitivities applicable across a broad range of industrial and medical applications. Oxford Instruments’ ultra-low temperature cryogenic platforms and scientific digital cameras are critical to the development of these technologies which, while still in an early stage of development, represent an enormous growth opportunity.
As a leading instrument provider, Oxford Instruments is a “picks and shovels” play on nanotechnology, since its success is predicated on the amount of research being conducted, rather than the actual success of individual technologies or products. As such, the business is exposed to significant growth opportunities in a wide range of fields, from healthcare and biotechnology, to computing and telecommunications. It is well positioned to exploit these opportunities thanks to some high barriers to entry for competitors. These include very strong niche positions in many of its product lines with high levels of intellectual property, a direct sales and distribution network, and a globally recognised brand that is synonymous with quality and reliability.
Killik & Co’s Mid Cap Equity Service
Oxford Instruments is an example of a current holding in this service, managed by Stephen. This directly invested, segregated service aims to achieve capital growth and income from a portfolio of UK mid cap shares, investing predominantly in constituents of the FTSE 250 Index. The team employs a disciplined investment process which aims to narrow the investable universe of around 200 stocks down to a 15- to 30-stock portfolio of “best ideas”, which are well balanced by sectoral exposure. The process focuses on the highest-quality businesses in the UK mid cap sector, with the following characteristics: an attractive valuation; a strong competitive advantage; high cash conversion; trustworthy management; a record of prudent capital allocation; and a consistent operating history. Please speak to your Adviser to find out more.
Should you have any questions about anything raised in this article, please don’t hesitate to contact us via email, or on 0207 337 0777.
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This note has been produced by Killik & Co on the basis of publicly available information, and all sources are believed to be reliable, but we have not independently verified such information and we do not give any warranty as to its accuracy. Some of the stocks mentioned in this note are covered by Killik & Co’s Equity Research team and others are not. The mentioning of the stocks does not represent a recommendation to buy or sell any securities, and the note is intended as a marketing communication rather than research. This note does not purport to be a complete description of the securities, markets or developments referred to in the material. All expressions of opinion are subject to change without notice. Nothing in this note should be construed as investment advice or as comment on the suitability of any investment or investment service. Prospective investors should take advice from a professional adviser before making any investment decisions. There are risks with almost every investment that you may not get back the original capital invested. The value of your investments may fall as well as rise and the past performance of investments is not a guide to future performance.