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Acquisition saves Porvair from steeper sales decline

The filtration specialist would have seen revenue drop by almost a fifth in the absence of Royal Dahlman
February 1, 2021
  • The 2019 Royal Dahlman acquisition helped offset weak aerospace sales
  • The laboratory business is benefiting from demand for Covid-19 testing products

While filtration and environmental technology specialist Porvair’s (PRV) saw its revenue dip by just 7 per cent to £135m in the year to 30 November, this was largely thanks to the contribution of Royal Dahlman, the Dutch industrial specialist acquired purchased in 2019. Excluding this acquisition, the group’s revenue declined by close to a fifth.

This reflects the fact that Porvair derives around a quarter of its revenue from the aerospace sector, which has been hit hard by the Covid-19 pandemic. Royal Dahlman helped offset a 19 per cent decline in aerospace sales with a better-than-expected performance from its petrochemical and distribution businesses.

Still, the fall in aerospace sales weighed on margins and the group’s adjusted operating profit dropped by more than a tenth to £14m. Statutory operating profit came in slightly lower at £13m, reflecting restructuring efforts in response to Covid-19 and the impairment of assets in China on the back of trade war pressures.

The laboratory business proved more resilient to pandemic disruption. While revenue ticked down by 4 per cent in the face of lab closures around the world, the shift away from industrial products to higher-margin diagnostic equipment meant that the segment’s operating profit actually increased by 2 per cent to £7m. Porvair has benefited from the demand for Covid testing products and this helped it enter 2021 with a record laboratory order book.

So, while the group has not been left unscathed by this crisis, it has remained profitable and cash generative throughout. Excluding lease liabilities, it was sitting on £5m of net cash at the end of November, up from £4m a year earlier. Unlike the countless other companies that cut their dividends last year, Porvair held its half-year payout steady and has now increased its final dividend to 3.3p a share.

Looking ahead, the group says that the near-term outlook remains uncertain. The recovery is being led by the laboratory business and aerospace will take longer to bounce back. The ‘aerospace and industrial’ business has lowered its cost base by trimming its headcount by over a fifth and aerospace orders are building for the second half of the year.  

But the long-term investment case remains intact. Porvair will continue to benefit from structural growth drivers, with tightening regulation spurring demand for emissions and water filtration products. Such products are typically designed into systems that have a long life cycle and the need to replace them regularly means that around 80 per cent of Porvair’s annual revenue comes from repeat orders. Buy.

Last IC View: Buy, 570p, 29 Jun 2020

PORVAIR (PRV)    
ORD PRICE:520pMARKET VALUE:£239m
TOUCH:518-522p12-MONTH HIGH:787pLOW: 370p
DIVIDEND YIELD:0.9%PE RATIO:28
NET ASSET VALUE:214p*NET DEBT:9%
Year to 30 NovTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201610910.117.13.8
201711611.719.52.7
201812912.022.13.0
201914514.023.64.7
202013511.618.44.9
% change-7-17-22+4
Ex-div:29 Apr   
Payment:4 Jun   
*Includes intangible assets of £70m, or 153p a share