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Spirax loses steam

Spirax delivered another solid performance in tough markets, but the shares slid 3 per cent as investors cashed in on a strong run
August 5, 2015

Spirax-Sarco's (SPX) strategic plan to increase direct sales, broaden its global presence, add products and reduce costs cemented yet another solid performance in treacherous markets. As its steam traps and pumps have many applications, they're sensitive to sluggish economic conditions, particularly industrial production growth. This has been particularly weak in key emerging markets.

IC TIP: Hold at 3311p

With that in mind, constant-currency organic sales growth of 3 per cent looks respectable. The group's niche peristaltic pumps business Watson-Marlow was particularly impressive, growing adjusted operating profit a tenth as an expanded product range won over customers. Asepco, which was acquired in April, also made a strong start.

Business wasn't so smooth in the steam unit. The low oil price impacted a number of regions it serves, leading to a reduced level of large project work. Flat sales, along with £0.5m in net headcount reduction costs and almost £1m of start-up expenses in India, meant adjusted operating profit tumbled 4 per cent.

Management are confident that cost-cutting, geographic expansion and investment in products and sales teams will keep things afloat while industrial production growth remains slow. To express its confidence - and share an improved operating cash inflow - it increased the dividend by 7 per cent.

Broker Numis forecasts adjusted pre-tax profit of £153m in the year to December, giving adjusted EPS of 145p (FY 2014: £151m and 140p).

SPIRAX-SARCO (SPX)
ORD PRICE:3,311pMARKET VALUE:£2.4bn
TOUCH:3,302-3,310p12-MONTH HIGH:3,637pLOW: 2,605p
DIVIDEND YIELD:2.0%PE RATIO:26
NET ASSET VALUE:467p*NET CASH:£53.5m

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201431963.558.719.5
201532057.352.220.8
% change--10-11+7

Ex-div: 8 Oct

Payment: 6 Nov

*Includes intangible assets of £92.2m, or 126p a share