Spirax-Sarco: Guidance Cut as Destocking Persists; Lowering Our Fair Value Estimate

Wide-moat Spirax-Sarco Engineering has lowered its guidance for the second consecutive quarter, following ongoing destocking from biopharmaceutical customers and a decline in the outlook for global industrial production during the remainder of 2023. We anticipated that destocking had mostly been completed; however, it appears that any recovery in demand is likely to be pushed out into 2024, which has led us to lower our 2023 organic revenue growth forecast from 3% to negative 1%. The impact of lower volumes has led us to reduce our operating margin from 22% to 21%, subsequently shaving 10% off our fair value estimate to GBX 10,600. We don’t believe the short-term destocking trend will affect the long-term outlook for Spirax-Sarco’s mission-critical equipment and thus we view shares as compelling at current levels.