Shares for the future: an attractive contrarian stock
This former top five firm is in the front line of the trade war and has tumbled down analyst Richard Beddard’s buy list after this rescoring. But despite the risk he still likes the business.
24th October 2025 15:00
by Richard Beddard from interactive investor
A week last Monday, Oxford Instruments (LSE:OXIG) published an update on its performance for the half-year to September 2025, the first half of the financial year.
It said it would achieve less revenue and profit than expected in the full year to March 2026, and that revenue and, wait for it, this is a long descriptor, organic constant currency-adjusted operating profit, would be roughly the same as it was in 2025.
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I last scored Oxford Instruments in July. Profit warnings are not necessarily a reason for me to reconsider a share’s score, but these are hairy times for manufacturers that export globally.
Their supply chains in the Far East and strategically significant products exported around the globe mean they are collateral damage in the trade war driven by the protectionist policies of China and the US.
I worry that I may have underestimated this risk in some of my scores.
Oxford Instruments is a gaggle of well-established and highly profitable businesses mainly supplying microscopy and camera equipment and software to industry and academia.
Front line of the trade war
Oxford Instruments explained that revenue was lower between March and September because of customer uncertainty about tariffs. It seems like ages ago, but President Donald Trump introduced the “Liberation Day” tariffs in April, near the beginning of the company’s financial year.
Although it’s tempting to treat trade disruption as a one-off now Oxford Instruments reports that demand is recovering, it feels more like a new normal.
As these events show, uncertainty hits profits. It also causes more uncertainty. The fear of shortages, or escalating prices, encourages companies to stockpile, disrupting supply and demand further.
Oxford Instruments is in the front line because many suppliers and about a quarter of its customers are in China. At least one subsidiary and just over a quarter of its customers are in the US.
The company’s warning was also notable because it mentioned rare earth materials.
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Rare earths are used in technology. They are difficult to extract and process and China produces a very high proportion of the world’s supply. From December it will require export licences for all rare earth exports. In response, the US has threatened more tariffs, so more uncertainty may lead to more profit warnings.
Oxford Instruments says that it is adapting its supply chain, presumably code for sourcing rare earths elsewhere, although these may well still ultimately have come from China. We will have to see how tightly the Chinese government can control supplies shipped, for example, through Southeast Asia.
Dealing trade ructions adds to costs and, although we can hope the great powers will reduce the intensity of trade war, I don’t think we can bank on it. This presents me with a dilemma. Oxford Instruments has a highly profitable past, but relatively free global markets contributed to its success.
Number soup
Highly refined profit measures rightly raise suspicions. Oxford Instruments excludes a hit to profit due to currency movements from its adjusted operating profit figure. It also ignores the contribution of NanoScience, a business the company has sold (it expects the transaction to complete imminently).
These adjustments are helpful in understanding the company’s performance. NanoScience’s contribution to profit (which was modest in 2025 and a loss in 2024) will end shortly, so it has no bearing on the future. Losses or gains due to currency swings have little bearing on our assessment of the quality of the business.
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Oxford Instruments is also probably excluding the cost of redundancies at Andor Technologies, a subsidiary it is reorganising, in its adjusted figures (more should be revealed in the forthcoming results). It may have excluded relocation costs relating to a new manufacturing facility at Severn Beach near Bristol, as it did last year.
Although these adjustments also help us understand how the underlying business is performing, they pollute the long-term average return on capital. Historically, though, Oxford Instruments has earned a high average return on capital in cash terms (29%), which is reassuring.
Returns have been lower over the last two years, but I think this has more to do with increased investment than stalled profit growth. Investment adds to capital, the denominator in the return on capital calculation, resulting in lower profitability until the returns from the investment come.
Bet on the future
Much of that investment relates to Severn Beach, which is now completed. This is where Oxford Instruments makes three new systems for manufacturing compound semiconductor machinery.
This business is not yet a significant contributor to profit. It may be a detractor. In 2025, its performance was lumped in with NanoScience, which returned to profit, and Oxford Instrument’s X-Ray business in the Advanced Technologies division. The trio contributed £6 million in profit (less than 8% of adjusted operating profit).
However, at least in terms of order growth in the half-year just gone, this is the part of the business with the best prospects. The Advanced Technologies Segment experienced a 25% increase in the value of orders (at constant currency, excluding NanoScience).
Compound semiconductors achieve higher performance than traditional semiconductors because they are made from more than one material. Oxford Instruments has developed three etch and deposition technologies into volume manufacturing systems.
Due to demand for advanced semiconductors in data centres and for augmented reality applications, semiconductor manufacturers are tooling up. The tripling of its manufacturing capacity at Severn Breach is intended to satisfy this demand.
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In disposing of NanoScience and choosing to focus on the profitable established Imaging and Analysis businesses, which in turn are bankrolling the roll out of volume semiconductor manufacturing technologies, Oxford Instruments’s strategy resembles Renishaw (LSE:RSW)’s, which I wrote up last week.
Renishaw is disposing of its unprofitable neurological division. Its highly profitable machine tool and factory automation business is bankrolling the roll out of Additive Manufacturing systems, a newish manufacturing technology, albeit for different products, also expected to go mainstream.
I doubt this is a coincidence. I think the cost of investing in multiple long shots is prohibitive at a time when operating costs have risen and revenue is disrupted by trade wars.
Scoring Oxford Instruments: doing the right thing
Messy numbers and geopolitical events outside a company’s control don’t make Oxford Instruments sound like an attractive investment, but as usual I’ve focused on the risks.
Oxford Instruments will add to its cash surplus when the NanoScience sale completes, which will enable it to invest in relatively low-risk acquisitions for the Imaging and Analysis segment.
The strategy is coherent, but also that there are limits to how far Oxford Instruments can mitigate the risk of the ongoing trade war. I have recognised both tariffs and export restrictions in my analysis, reducing the risk score by a half point:
Oxford Instruments | OXIG | Makes imaging and semiconductor manufacturing systems | 21/10/2025 | 7.5/10 |
How capably has Oxford Instruments made money? | 2.0 | |||
Oxford Instruments has increased profit at a high single-digit CAGR since 2018 by focusing on imaging and analysis technologies with broad applications in industry and academia. In recent years, it has made modest acquisitions, two of them under its newish chief executive. | ||||
How big are the risks? | 1.5 | |||
Heavy investment in R&D and capital expenditure is weighing on profitability, though profits from Oxford Instruments' volume semiconductor manufacturing should come in time. Tariffs and trade restrictions are disrupting its two biggest markets - the US and China, and its supply chain. | ||||
How fair and coherent is its strategy? | 3.0 | |||
By disposing of NanoScience the company has simplified the business. It is augmenting the profitable imaging business through acquisitions and scaling up its promising compound semiconductor manufacturing technologies. Voluntary staff turnover was 8% in 2024. | ||||
How low (high) is the share price compared to normalised profit? | 1.0 | |||
Low. A share price of 1,840p values the enterprise at £1,001 million, about 9 times normalised profit. | ||||
NB: Bold text indicates factors that reduce the score. Bold and italicised text doubly so. The maximum score is 3 for each criterion except price, which has a maximum of 1 (explainedhere) | ||||
Oxford Instruments’ low share price, and to my mind attractive qualities, makes it quite the contrarian share.
30 Shares for the future
Here’s the ranked list of Decision Engine shares. I review the scores at least once a year, soon after each company has published its annual report. The price scores are calculated using the share price prior to publication.
Generally, I consider shares that score more than 5 out of 10 to be worthy of long-term investment in sizes determined by the ideal holding size (ihs%).
Thorpe (F W) (LSE:TFW) has published its annual report and will be re-scored next week.
company | description | score | qual | price | ih% | |
1 | FW Thorpe | Makes lighting systems for commercial, industrial and public settings | 8.5 | 0.7 | 8.4% | |
2 | Howden Joinery | Supplies kitchens to small builders | 8.0 | 0.6 | 7.3% | |
3 | James Latham | Distributes imported panel products, timber, and laminates | 7.5 | 1.0 | 7.0% | |
4 | YouGov | Surveys and distributes public opinion online | 7.5 | 0.5 | 6.0% | |
5 | Jet2 | Package tour operator and leisure airline | 7.0 | 1.0 | 6.0% | |
6 | Macfarlane | Distributes and manufactures protective packaging | 7.0 | 0.9 | 5.9% | |
7 | Solid State | Manufactures electronic systems and distributes components | 7.0 | 0.9 | 5.9% | |
8 | Bunzl | Distributes essential everyday items consumed by organisations | 7.5 | 0.3 | 5.6% | |
9 | Softcat | Sells hardware and software to businesses and the public sector | 8.0 | -0.4 | 5.2% | |
10 | Hollywood Bowl | Operates tenpin bowling centres | 7.5 | 0.1 | 5.2% | |
11 | Bloomsbury Publishing | Publishes books and educational resources | 7.5 | 0.0 | 5.1% | |
12 | 4Imprint | Customises and distributes promotional goods | 8.0 | -0.5 | 5.0% | |
13 | Churchill China | Manufactures tableware for restaurants etc. | 6.5 | 1.0 | 5.0% | |
14 | Oxford Instruments | Makes imaging and semiconductor manufacturing systems | 7.5 | 6.5 | 1.0 | 5.0% |
15 | Porvair | Manufactures filters and laboratory equipment | 8.0 | -0.5 | 4.9% | |
16 | Renew | Maintenance and improvement of national infrastructure | 7.5 | -0.2 | 4.7% | |
17 | Judges Scientific | Manufactures scientific instruments | 7.5 | -0.2 | 4.6% | |
18 | Anpario | Manufactures natural animal feed additives | 7.0 | 0.2 | 4.4% | |
19 | Auto Trader | Online marketplace for motor vehicles | 8.0 | -0.9 | 4.2% | |
20 | Cake Box | Cake shop franchise and sweet manufacturer | 7.0 | 0.0 | 4.1% | |
21 | Focusrite | Designs recording equipment, synthesisers and sound systems | 6.0 | 1.0 | 4.0% | |
22 | Advanced Medical Solutions | Manufactures surgical adhesives, sutures and dressings | 6.5 | 0.5 | 4.0% | |
23 | Games Workshop | Designs, makes and distributes Warhammer. Licences IP | 8.5 | -1.5 | 3.9% | |
24 | Keystone Law | Operates a network of self-employed lawyers | 7.5 | -0.9 | 3.3% | |
25 | Volution | Manufacturer of ventilation products | 8.0 | -1.4 | 3.1% | |
26 | Cohort | Manufactures/supplies defence tech, training, consultancy | 8.0 | -1.6 | 2.7% | |
27 | Renishaw | Makes tools and systems for manufacturers | 6.5 | -0.7 | 2.5% | |
28 | Quartix | Supplies vehicle tracking systems to small fleets | 7.5 | -1.8 | 2.5% | |
29 | Goodwin | Casts and machines steel and processes minerals for niche markets | 8.0 | -2.3 | 2.5% | |
30 | Tristel | Manufactures disinfectants for simple medical instruments and surfaces | 7.5 | -2.0 | 2.5% |
Click on a share's score to see a breakdown (scores may have changed due to movements in share price). Key: qual is the share’s score out of 9 for the three quality factors (capabilities, risks, and strategy), price is the price score from -3 to +1, and ih% is the suggested ideal holding size as a percentage of the total value of a diversified portfolio.
Richard Beddard is a freelance contributor and not a direct employee of interactive investor.
Richard owns Oxford Instruments and many shares in the Decision Engine. He weights his portfolio so it owns bigger holdings in the higher-scoring shares.
For more on the Decision Engine, please see Richard’s explainer.
Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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