For much of the past two decades, Judges Scientific (LSE:JDG) has been one of the UK’s outstanding compounders with a “buy and build” strategy: acquire high-quality scientific instrument businesses, give talented management teams the freedom to run them, allocate capital carefully, and allow time to compound the returns.
The results have been fantastic. Revenue, earnings and dividends have all compounded over many years, rewarding patient shareholders handsomely.
Unfortunately for me, I first purchased Judges Scientific after the model had already begun to wobble. Its largest-ever acquisition, Geotek, introduced a more episodic earnings stream, while parts of the wider portfolio were beginning to encounter weaker markets and operational challenges.
A Difficult First Half
My thesis was that this remains a high-quality business experiencing a difficult period, rather than a permanently impaired compounder. The latest interim results put that thesis under further scrutiny.
Revenue fell 21% to £55.7m. Adjusted operating profit fell 66%, while adjusted earnings per share declined 72% to 39p. Order intake was 12% lower than the previous year. There is little point pretending these are anything other than very poor numbers, but there are important reasons behind them.
Geotek didn’t undertake a coring expedition during the period. Uncertainty surrounding US federal research funding affected demand. Offshore wind projects continued to be postponed, while delays to China’s R&D tax exemption process disrupted purchasing decisions.
These are genuine external headwinds. But it would be too easy to attribute everything to circumstances beyond management’s control. Judges has also acknowledged product-specific challenges within parts of the portfolio, and the fall in volumes has exposed the operational leverage inherent in the business.
A temporary slowdown in scientific research spending is one thing. A deterioration in the businesses themselves would be something quite different. My job as a shareholder is therefore not simply to label every problem temporary, but to determine which problems should eventually reverse and which might indicate something more fundamental.
What went Wrong?
So far, I find management’s response encouraging.
Eight businesses still grew during the period. Management reduced the cost base of underperforming businesses by £1.8m while continuing to invest selectively elsewhere, including £1m of additional investment in areas intended to support recovery and future growth.
More importantly, order intake has improved markedly since June. Having finished the first half 12% behind the previous year, orders were only 1% behind on a year-to-date basis by the time the interim results were published. The order book stood at 17.3 weeks of sales, compared with 15.7 weeks at the end of 2025.
There are also early indications that China’s tax exemption difficulties are being resolved.
None of this guarantees an easy recovery. The improvement in orders means an unusually large proportion of revenue is expected during the final quarter, introducing execution risk. US research funding also remains uncertain.
Signs of Recovery
Nevertheless, the Board has maintained its full-year guidance, with current consensus expectations of approximately 200.5p of adjusted earnings per share. In addition, Judges increased its interim dividend by 10% to 36p despite the difficult first half.
I don’t take that as evidence that everything is fine. Indeed, the dividend was covered only 1.1 times by adjusted earnings, a level management explicitly acknowledges is not sustainable. Earnings ultimately need to recover if dividend growth is to continue, but it does demonstrate the Board’s confidence that the current level of profitability is not representative of the group’s long-term earning power.
The bigger question for me is whether the difficulties of the past couple of years have changed what I originally believed about Judges.
I previously regarded the group’s collection of specialist scientific businesses as providing considerable protection from broader economic cycles. I now think that view was too generous.
Judges is diversified across numerous niches, customers and technologies, but those businesses can still be exposed simultaneously to common influences: government research budgets, industrial capital expenditure, Chinese procurement policies and broader investment cycles. Whilst diversification reduces those risks, it doesn’t entirely eliminate them.
The Lesson from Geotek
Geotek reinforces another lesson. The next coring expedition is now expected no earlier than 2028. I therefore have little interest in valuing Judges on the assumption that large, irregular expeditions will conveniently appear when required.
To me, the permanent value of Judges lies instead in the recurring earning power of the wider portfolio and management’s ability to acquire exceptional niche businesses, allocate capital intelligently and allow those businesses to become more valuable over decades rather than quarters.
Unfortunately, there’s also a management transition to consider. David Cicurel moved from Chief Executive to non-executive Chair earlier this year, while CFO Brad Ormsby has now announced his intention to step down during the next twelve months. For a business whose success has depended so heavily on disciplined capital allocation, succession deserves watching carefully.
None of this invalidates my investment thesis. But it does make the thesis more demanding.
I’m less interested in simply declaring the first half of 2026 temporary just because I want it to be. I want to see order intake continue to recover, weaker businesses improve, cash generation strengthen and management retain the acquisition discipline that created so much shareholder value in the first place.
So far, there are encouraging signs.
Judges Scientific is having a very difficult period. What I haven’t yet seen is convincing evidence that the characteristics which made it an exceptional long-term compounder have disappeared.
For now, that distinction matters more to me than any single year’s earnings.