Dependable Spectris goes under the radar

Key to a better-than-expected performance in 2015 was the diversity of the group's operations. While Spectris does rely on the cash-strapped oil and gas and mining markets for a portion of its revenues, it also has access to sectors backed by legislative drivers. For example, the engineer's testing kit has been used to develop vehicle simulators designed to create more efficient cars. Uptake has been strong since the Volskwagen emissions-rigging scandal sparked calls for more rigorous checks. Elsewhere, the pharmaceuticals industry has similarly been demanding better testing equipment to ensure that drugs are made to the necessary standards.

A series of bolt-on acquisitions has helped Spectris to increase exposure to these types of growth markets. In 2015, five new businesses were brought onboard at a cost of £45m as part of management's aim to build new skill sets in sectors with high barriers to entry.

Strong cash generation means these purchases haven't weighed too heavily on the balance sheet, either, leaving plenty more headroom for further earning-enhancing deals in the year ahead. Other potential bonuses include the £10m of extra profit expected to be generated from lean manufacturing measures and further investment to develop its customer service approach. By supplying a complete package of services, Spectris should be better able to woo customers when many of them are cutting back on spending.

Spectris's ability to invest in such an environment ought to help it continue putting in a credible performance during the downturn, as well as leaving it better placed than cash-strapped rivals when end-markets improve. And judging by the latest industrial production figures, that time may come sooner than many expect.

North American industrial investment spend ground to a halt last year, owing to the sharp drop in oil prices, a strong dollar and global economic uncertainty in key regions such as China. While many of these problems have yet to ease, orders have steadily staged a recovery in the past few months.

Given how much destocking took place beforehand, that means demand now outstrips supply. According to Daniel Cunliffe at broker Liberum Capital, whenever this has happened in the past a full-scale recovery almost always ensued. Any spike in industrial production should be good news for the oil price, too, particularly as factories across the pond are huge consumers of the black stuff. An indication of these trends in the next trading update due on 20 May could have big implications for the share price.

There is the notion that industrial production in China, Spectris's third biggest market, may exceed dampened expectations, even though issues such as a policy to curb the use of coal continue to significantly undermine these prospects. One reason for renewed optimism may be official attempts to stabilise the country's property sector, which accounts for around 15 per cent of the People Republic's gross domestic product. But weighing against this hope is the impact that the property market already looks dangerously overheated. Indeed, some have likened the amount of borrowing there to the levels that prompted the US sub-prime crisis.

Still, there is one issue in China that may well provide a big boost - rapid wage inflation has forced the government to look closer at enhancing manufacturing productivity. As a leader in this field, Spectris is well-positioned to profit from this drive.