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Sterling strength threatens Spirax-Sarco

RESULTS: A strong pound is likely to wipe out underlying growth at highly-rated engineer Spirax-Sarco this year
March 7, 2014

Nick Anderson has only been in the job seven weeks, but Spirax-Sarco’s (SPX) new boss has no plans for major changes. Why would he? Last year was another of record sales, profits and margins, due in no small part to Mr Anderson’s restructuring efforts while running the steam and pump engineer’s European operation.

IC TIP: Hold at 3050p

Delivering the final tranche of a £5.5m cost-saving exercise on the continent swelled operating margin at the region’s steam business by 350 basis points at constant currency. Unsurprisingly, adjusted operating profit surged by over a quarter to £48.2m, and shedding lower-margin work should help maintain returns at group level at around 22 per cent. Pumps division Watson-Marlow inflated margins, too, driven by new products like the Qdos peristaltic pump.

Overall, Spirax grew underlying pre-tax profit by a tenth to £152m. Broker Numis Securities, however, believes the strong pound will snuff out much of the anticipated underlying growth this year. It’s pencilling in adjusted pre-tax profit of less than £153m for 2014, giving adjusted EPS of 139p, effectively flat on last year.

Of course, that may prove conservative, especially if the nascent recovery in European industrial production, which Spirax typically lags by about nine months, gathers momentum.

SPIRAX-SARCO (SPX)

ORD PRICE:3,050pMARKET VALUE:£ 2.3bn
TOUCH:3,044-3,052p12-MONTH HIGH:3,214pLOW:  2,432p
DIVIDEND YIELD:1.9%PE RATIO:23
NET ASSET VALUE 534p*NET CASH:£16.4m

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)**
2009519767036.1
201059012411343
201165013212049
201266212411253
201368914613359
% change+4+17+19+11

Ex-div: 30 Apr

Payment: 30 May

*Includes intangible assets of £90.4m, or 120p per share

**Excludes special dividends of 25p in 2010 and 100p in 2012