Company Reports

Investors in wide-moat Spirax-Sarco should favorably view its brief trading update that indicated low-single-digit organic revenue growth during the first four months of the fiscal year. Particularly pleasing is that all three of its operating segments recorded organic growth, an indicator that its Watson-Marlow division is likely through the worst of customer destocking from the biopharmaceutical sector and that the segment’s poor showing in fiscal 2023 was cyclical and not structural. Full-year guidance of mid- to high-single-digit organic revenue growth and low-double-digit organic operating profit growth was maintained. Spirax’s shares screen undervalued to our unchanged GBX 10,600 fair value estimate. We believe uncertainty surrounding the timing of a recovery in sales and its new management team are weighing on the share price, presenting a buying opportunity.

Spirax-Sarco Engineering has managed to embed its products and highly qualified engineers, who act as its salesforce, into customers’ industrial and commercial processes. Approximately 50% of the group’s sales are from recurring maintenance, with an average invoice value of GBP 1,200, and a further 35% from small improvement projects with short payback periods. The recurring nature of Spirax-Sarco's sales has allowed the group to enjoy greater resilience through the economic cycle compared with the more cyclical swings in customers’ capital-expenditure budgets, which are dependent on uncontrollable macroeconomic factors.

Wide-moat Spirax Group’s fiscal 2024 guidance of double-digit operating profit growth confirms our view that the challenges it faced in fiscal 2023, which saw organic revenue decline by 1%, were cyclical and not structural. Upbeat guidance for fiscal 2024 has ended the market's concerns that the destocking trend in fiscal 2023 reflected the group's long-term outlook, sending shares 11% higher. Our forecasts had incorporated a recovery in demand during fiscal 2024, broadly in line with management's expectations, and thus we maintain our GBX 10,600 fair value estimate. Following the jump in the share price on March 7, we view shares as fairly valued.

Spirax-Sarco Engineering has managed to embed its products and highly qualified engineers, who act as its salesforce, into customers’ industrial and commercial processes. Approximately 50% of the group’s sales are from recurring maintenance, with an average invoice value of GBP 1,200, and a further 35% from small improvement projects with short payback periods. The recurring nature of Spirax-Sarco's sales has allowed the group to enjoy greater resilience through the economic cycle compared with the more cyclical swings in customers’ capital-expenditure budgets, which are dependent on uncontrollable macroeconomic factors.

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.

Destocking from Watson-Marlow’s biopharma customers, who are still working their way through excess inventories bought during the pandemic, had a significant effect on wide-moat Spirax-Sarco’s first-half results and is expected to persist during the full year. Organic revenue grew 2% during first-half 2023, which, if we exclude biopharma customers, would have been 11%, highlighting that the remainder of the group remains structurally strong, growing significantly ahead global industrial production. We had anticipated destocking to be mostly complete by now and thus lower our 2023 organic revenue growth to 3.2% from 5.4% and our EBIT margin to 22.2% from 23.5%. Nevertheless, the group’s longer-term outlook remains firmly intact as does our GBX 11,800 fair value estimate. Shares are slightly undervalued.

Spirax-Sarco Engineering has managed to embed its products and highly qualified engineers, who act as its salesforce, into customers’ industrial and commercial processes. Approximately 50% of the group’s sales are from recurring maintenance, with an average invoice value of GBP 1,200, and a further 35% from small improvement projects with short payback periods. The recurring nature of Spirax-Sarco's sales has allowed the group to enjoy greater resilience through the economic cycle compared with the more cyclical swings in customers’ capital-expenditure budgets, which are dependent on uncontrollable macroeconomic factors.

Wide-moat Spirax Sarco released a four-month trading update, which is tracking in line with management's and our own expectations. The anticipated unwinding of excess inventories at biopharmaceutical customers (particularly customers involved in the production of coronavirus vaccines) has led to a decline in segmental sales year to date, whereas the group’s other two operating segments continue to significantly outperform global industrial production supported by historically high order books. Nevertheless, we remain confident that the Watson-Marlow segment will return to growth during the second half of the year as order intake is in line with the previous quarter and therefore the next inflection point will be upward once excess stock winds down. Management has kept its full-year guidance provided in March of mid-single-digit organic sales growth (or double-digit growth including acquisitions) unchanged. We reiterate our GBX 11,800 fair value estimate and view shares as marginally undervalued.

Spirax-Sarco Engineering has managed to embed its products and highly qualified engineers, who act as its salesforce, into customers’ industrial and commercial processes. Approximately 50% of the group’s sales are from recurring maintenance, with an average invoice value of GBP 1,200, and a further 35% from small improvement projects with short payback periods. The recurring nature of Spirax-Sarco's sales has allowed the group to enjoy greater resilience through the economic cycle compared with the more cyclical swings in customers’ capital-expenditure budgets, which are dependent on uncontrollable macroeconomic factors.

Wide-moat Spirax-Sarco reported a strong set of full-year results, which were largely consistent with our expectations. Organic revenue grew 14%, comfortably ahead of global industrial production, and was further boosted by recent acquisitions. Organic operating profit growth of 7% was at a slower rate than revenue, which was anticipated given the step-up in the group’s investments for future growth opportunities. Nevertheless, the adjusted operating profit margin of 23.6% (160-basis-point decline) remains extremely impressive and epitomizes the quality of the group. We expect these investments combined with a record order book across its steam specialties and electric thermals solutions segments to support Spirax-Sarco's outperformance against global industrial production. We reiterate our GBX 11,800 fair value estimate and view shares as fairly valued.

Spirax-Sarco Engineering has managed to embed its products and highly qualified engineers, who act as its salesforce, into customers’ industrial and commercial processes. Approximately 50% of the group’s sales are from recurring maintenance, with an average invoice value of GBP 1,200, and a further 35% from small improvement projects with short payback periods. The recurring nature of Spirax-Sarco's sales has allowed the group to enjoy greater resilience through the economic cycle compared with the more cyclical swings in customers’ capital-expenditure budgets, which are dependent on uncontrollable macroeconomic factors.

Wide-moat Spirax-Sarco continues to progress in line with our expectations following its third-quarter trading update, which was thin on quantitative details, but which can be viewed as marginally positive overall. Performance remains robust across all three operating segments, despite global economic forecasts deteriorating. Sales have been progressing better than anticipated during the group’s half-year release, but second-half margins are likely to be weaker than the 23.8% achieved during first-half 2022. Nevertheless, full-year operating margin was maintained. The group has also been active on the acquisition front during the last quarter, announcing two deals, which will be accretive to current-year revenue and EBIT by approximately GBP 25 million and GBP 5 million, respectively. While we plan to adjust our estimates to incorporate the acquisitions, we don’t expect to change our GBX 11,800 fair value estimate. Shares are currently fair valued.

Spirax-Sarco Engineering has managed to embed its products and highly qualified engineers, who act as its salesforce, into customers’ industrial and commercial processes. Approximately 50% of the group’s sales are from recurring maintenance, with an average invoice value of GBP 1,200, and a further 35% from small improvement projects with short payback periods. The recurring nature of Spirax-Sarco's sales has allowed the group to enjoy greater resilience through the economic cycle compared with the more cyclical swings in customers’ capital-expenditure budgets, which are dependent on uncontrollable macroeconomic factors.

Wide-moat Spirax-Sarco delivered an impressive first-half performance, delivering organic revenue growth of 15%, comfortably exceeding global industrial production growth of 2.9%. Growth was broad-based; however, Watson-Marlow continues to be the best performing segment, which grew 26%, driven by 30% sales growth to pharmaceutical customers, which account for 60% of the segment’s sales. The order book across all three businesses remains at all-time highs, which we anticipate will continue to support above-industry growth during the remainder of the year. We reiterate our GBX 11,800 fair value estimate and view shares as fairly valued.

Performance at wide-moat Spirax-Sarco is tracking in line with our expectations during the first four months of the year. Record order books at year-end and the expansion of manufacturing capacity have supported revenue growth significantly above global industrial production growth of 3.2%, whereas Watson-Marlow’s pharmaceutical and biotechnology sector grew over 20%. The order book across all three businesses remains at all-time highs, which we anticipate will continue to support above-industry growth. We believe rising energy prices are also a vector for growth, as customers are incentivized to optimize their energy efficiency at shorter payback periods. Guidance for the full year was maintained. We reiterate our GBX 11,800 fair value estimate and view shares as fairly valued.

Spirax-Sarco Engineering has managed to embed its products and highly qualified engineers, who act as its salesforce, into customers’ industrial and commercial processes. Approximately 50% of the group’s sales are from recurring maintenance, with an average invoice value of GBP 1,200, and a further 35% from small improvement projects with short payback periods. The recurring nature of Spirax-Sarco's sales has allowed the group to enjoy greater resilience through the economic cycle compared with the more cyclical swings in customers’ capital-expenditure budgets, which are dependent on uncontrollable macroeconomic factors.

We expect to moderately increase our GBX 10,910 fair value estimate for wide-moat Spirax-Sarco as there appears to be no signs of demand falling away, particularly at the Watson-Marlow division. Full-year results broadly met our expectations and were impressive, despite supply chain disruptions, which led to a record order book and pushed deliveries into 2022. Management anticipates current-year revenue growth to be well above global industrial production growth estimates of 4.4%, which the company managed to exceed by more than 2 times in 2021. We anticipate similar levels of outperformance for 2022. Spirax-Sarco’s direct sales model requires higher demand to be met with additional investments in staff and production expansion, which will have a dilutive impact on the group’s record EBIT margin of 25.3%. Having been priced for perfection, the share price has converged with our fair value estimate. We view shares as fairly valued.

Having been priced for perfection, a tough third quarter for wide-moat Spirax-Sarco Engineering has been met with some disappointment by the market. Shares fell 5% at the opening of the market following its third-quarter trading update. Although limited financial details were provided, supply chain disruptions have lowered global industrial production forecasts and affected the order deliveries. As a result, revenue was lower than management's expectations in the third quarter. Nevertheless, demand and order growth remain strong and thus we maintain our GBX 10,910 fair value estimate. Full-year guidance for record levels of revenue and operating margins of approximately 25% were reiterated. We view shares as richly valued, currently trading at a 51 times price/earnings multiple on our 2021 forecast earnings.

We raise our fair value estimate for wide-moat Spirax-Sarco to GBX 10,910 from GBX 10,200 to incorporate better-than-expected operating margins following its strong set of first-half results. Operating profit grew 42% year over year, supported by a recovery in global industrial production combined COVID-19 vaccine-related demand for Watson-Marlow’s (41% of EBIT) products. Management expects second-half operating margins to be similar to the record high 25.3% achieved in the first half, an increase of 440 basis points in first-half 2021 and an expected increase of 260 basis points for the full year. We view shares as being richly valued, currently trading at 47 times our 2021 earnings estimate.

Spirax-Sarco Engineering has managed to embed its products and highly qualified engineers, who act as its salesforce, into customers’ industrial and commercial processes. Approximately 50% of the group’s sales are from recurring maintenance, with an average invoice value of GBP 1,200, and a further 35% from small improvement projects with short payback periods. The recurring nature of Spirax-Sarco's sales has allowed the group to enjoy greater resilience through the economic cycle compared with the more cyclical swings in customers’ capital-expenditure budgets, which are dependent on uncontrollable macroeconomic factors.