Shares for the future: the cost of overpaying for big acquisition

Judges Scientific released its half-year results in September. They have prompted me to reconsider the company’s score.

Founder David Cicurel described Judges Scientific (LSE:JDG)’ performance as “very poor”. Revenue was down 21% in the first half of the financial year to December 2026 compared to the corresponding half-year in 2025. Adjusted pre-tax profit was 75% lower.

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Judges manufactures scientific instruments and sells them to universities and industry. It reported a familiar catalogue of factors weighing on revenue and profitability.

Reduced funding for academic research in the US, Judges’ biggest market, and delayed orders in China, until recently Judges’ most promising market, seem to be entrenched or recurrent problems.

Weakness in green investment, especially offshore wind, also weighed on some of its subsidiaries, probably GDS and Geotek. I wonder if wind projects are a victim of the renewed focus on oil and gas, particularly in the US.

Revenue from Geotek will also be lower than usual in 2026 because there is no coring expedition scheduled. Coring expeditions collect geological cores typically for large-scale energy and infrastructure projects.

In more disappointing news, the company says an expedition slated for 2027 has been delayed and it doesn’t anticipate coring revenue that year either.

Judges Scientific anticipates coring expeditions in three out of every four years, and when they take place they earn it a windfall. Typically, Geotek coring projects have added 3-5% to Judges’ annual revenue when they have happened, and they have probably contributed a bigger proportion of profit.

The headwinds mean only eight of Judges’ 25 businesses grew in the first half of the year. Orders have picked up, and the company believes it will achieve consensus analyst forecasts of a 15% decline in revenue and 27% decline in adjusted earnings per share for the year to December 2026. That would be 4% below peak revenue in 2023, and 46% below peak earnings per share (EPS), also in 2023.

Although return on capital was below par in 2024 and 2025, and it will be lower in 2026, at an operating level the company would still be highly profitable. However, it ploughs surplus profits into acquisitions, and that strategy has not been fruitful in recent years.

Geotek was acquired in 2022 and remains Judges’ largest acquisition. Although it achieved three coring expeditions in its first four years as a subsidiary, if it doesn’t mount a coring expedition in 2027 Geotek will only have achieved one in the four years bounded by 2024 and 2027.

Getotek has not lived up to expectations. Since 2022, group after-tax ROTIC (Return on Total Invested Capital) has fallen from 17% to 9% in 2025. ROTIC compares profit to total invested capital (including the unamortised cost of acquisitions). Given the prospect of lower profits in 2026, it is likely to have declined even further when December’s full-year results are released.

I think we can put the decline in profitability down to two factors. The first is that Judges’ export-oriented businesses are hampered by the fractious geopolitical environment of the 2020s. They thrived in the more stable backdrop of the 2010s. Its debt-fuelled buy-and-build model may also be less potent as it operates it on a bigger scale.

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As Judges grows, acquisitions must be larger if they are to have the same impact on revenue and profit. Bigger businesses are generally more complex and expensive, so they are more risky. Geotek was not only a big acquisition, its coring expeditions and service-based offerings added complexity. Unlike most of Judges’ acquisitions, Geotek is not just a product business. It rents equipment and analyses the data it produces too.

I also wonder about interest rates. Relatively high borrowing costs mean more of Judges’ cash flow is diverted into servicing debt and, other things being equal, it will take longer to pay off debt when interest rates are high so it can gear up again for the next acquisition. While we might expect valuations to fall if they are more costly to finance, I don’t know whether this is happening in practice.

With the acquisition model not working as well as it used to, the company is focusing on improving and growing the 25 businesses it already owns. I doubt this will be sufficient to mitigate the external challenges it faces in full.

Although Judges’ businesses typically operate in niches where there are few competitors, the quid pro quo is that these niches are narrow, and consequently there may not be easy ways to extract more from them. This is why it recycles the fat profits it makes into acquiring, rather than developing, similar businesses.

The signs are that growth will be constrained for a while. The half-year results anticipate some recovery in China where orders had been delayed in anticipation of a new R&D tax exemption process. But the processes have not yet been finalised and protectionism has generally reduced Judges’ prospects of growth there.

In the US, Judges reports the federal government wants to cut research funding in 2027. Beyond that, a proposed overhaul of science funding “is not fully understood”.

Brokers forecast a 5% bump in revenue and a 12% increase in pre-tax profit in 2027 compared to the 2026 forecast. That would still leave revenue marginally below its peak in 2023 and pre-tax profit 40% lower.

Judges is still a collection of good businesses. Return on capital was over 40% in 2025, but regaining its fast-growing status seems to be dependent on policies and decisions outside its control. Given the state of the world, and the propensity for its leaders to stir things up, an outbreak of stability does not feel imminent.

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I hate second-guessing directors’ motives, but the company’s stodgy prospects may have been a factor in Judges’ chief financial officer’s decision to resign last month. It will not take effect until next September to ensure an orderly handover. 

When he leaves, the board will look fresher than we are accustomed to. He has been with the business since 2015. Chief executive Tim Prestidge joined in 2023 and was promoted earlier this year. Chief commercial officer Ian Wilcock joined in 2024. David Cicurel is the constant presence. The company’s 77-year-old founder stepped down as chief executive to make way for Tim Prestidge. He is non-executive chair now.

Most of these risks were acknowledged in my previous score. But while I have feared that Judges overpaid for Geotek since the company was acquired, I believe the company’s subsequent performance is confirming that fear. That, to my mind, makes the company a less capable acquirer and I have reduced its score by half a point.

I don’t think Judges Scientific is a bad investment, but a large part of the attraction today is the low share price.         

Re-scoring Judges Scientific

30 shares for the future

Here is 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%).

Jet2  Ordinary Shares (LSE:JET2) and Renishaw (LSE:RSW) have published annual reports and are due to be re-scored. 

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 does not own Judges Scientific. He owns 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 and Share Sleuth, please see Richard’s explainer.

Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard