Spectris shows resilience as inflation bites

Precision measurement firm Spectris (SPX) has spent the past few years working to streamline its portfolio of subsidiary companies. Only last month it received headline sales proceeds of £410mn from the sale of its Omega business to a private equity firm. The disposals have made comparisons trickier.  

According to the company’s half-year results, the Omega disposal has rendered it “an even more focused and less cyclical business”. Spectris is now made up of three firms – Malvern Panalytical, HBK and Industrial Solutions – all focused on the provision of high precision tools. 

Does its newly bolstered balance sheet mean that acquisitions are inevitable? The answer isn’t clear.

It was announced in late February that the group was in buyout talks with Oxford Instruments – a fellow provider of tools to companies and scientific researchers. However, the discussions were shut down a week later following Russia’s invasion of Ukraine. Geopolitical and macroeconomic uncertainty will inevitably postpone investment decisions in any sector. The question investors must ask about Spectris is whether its current portfolio is robust enough to deliver growth in turbulent times. Analysts at Peel Hunt think so.

“Does Spectris have to make a transformational acquisition to be rerated? No, but it would accelerate the process,” they wrote in a June note. “As already highlighted, we see value, and we suspect we are not alone in this line of thinking, given the accelerating M&A activity around industrial technology assets.”

Management expects demand for its products and services to remain healthy, with continued growth in its orders and sales figures through the rest of the year. FactSet broker consensus puts the company’s forward price-to-earnings ratio at 19 times for the year, down from 26 times last year. We stick with our buy call.