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Spirax-Sarco over the crest of Covid-19 wave

The engineering firm saw sales climb during the pandemi due to its exposure to the pharmaceutical industry, but says this will continue this year
Spirax-Sarco over the crest of Covid-19 wave
  • Highly specialised industrial firm upping capacity even as Covid-19 rush comes to an end
  • Final and total dividends for 2021 up 15 per cent on last year

A bullish outlook and strong 2021 sales were enough to spark a small reappraisal of Spirax-Sarco Engineering (SPX) by investors, sending its share price up 4 per cent. This is but a drop in the ocean compared with its 37 per cent fall from the 12-month high registered in September, however. 

The precision pump and steam device specialist said it saw “unprecedented demand” last year across each of its divisions. Watson-Marlow, which makes pumps for the pharmaceutical and biotech sectors, led the way with a 27 per cent hike in sales and 40 per cent increase in adjusted operating profit, to £150mn. 

This was despite supply chain challenges in the second half, including raw material and component shortages. 

The other two divisions did not see this kind of growth, but Spirax’s overall operating profit margin increased by a healthy 3 percentage points compared with 2020.

Adjusted cash from operations increased slightly, even after a hit from higher capital investment – which rose from £47mn to £62mn in 2021. This should continue this year as well. Despite this increase, return on capital employed (ROCE) climbed 8.8 percentage points in the year, to 54.7 per cent. 

“For 2022, we currently anticipate strong sales growth, driven by record order books and continued global industrial production growth,” said chief executive Nicholas Anderson, adding that operating profit growth would be hit by expansion spending but that the margin would still be “comfortably above pre-pandemic levels”. 

The final dividend of 97.5p has matched the 15 per cent growth of the interim payout, taking the total dividend to 136p for 2021. 

At the release of Spirax’s interim results last year, we said its forward earnings ratio of 42 times was a bit much to keep it on a buy. Now this is down to 33 times it may seem churlish to remain neutral, but the industrial growth expounded by the company does not seem as certain to us. Hold. 

Last IC View: Hold, 15,415p, 11 Aug 2021

SPIRAX-SARCO ENGINEERING (SPX)  
ORD PRICE:11,825pMARKET VALUE:£8.7bn
TOUCH:11,805-11,325p12-MONTH HIGH:17,225pLOW: 10,785p
DIVIDEND YIELD:1.2%PE RATIO:37
NET ASSET VALUE:1,372p*NET DEBT:19%
Year to 31 DecTurnover (£bn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
20171.0019321488
20181.15289303100
20191.24237226110
20201.19240236118
20211.34315318136
% change+13+31+35+15
Ex-div:28 Apr   
Payment:20 May   
*Includes intangible assets of £667mn, or 907p a share