Spirax-Sarco over the crest of Covid-19 wave

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