Porvair swings in right direction

Although there were swings in demand across various parts of Porvair’s (PRV) business last year, these have evened out and efforts taken in past years to improve performance have paid off in terms of a wider operating margin.

This can most clearly be seen in its aerospace arm, which benefited from a big increase in volumes. Its performance helped to offset softness in its laboratory equipment arm. This was a reversal of the picture that emerged in the two prior years, when a stronger biosciences market masked weakness in aerospace.

“Ours is the sort of business where that does happen,” said chief executive Ben Stocks. “If you’re lucky, the balance of the pluses and minuses, the swings and roundabouts, comes out ahead.”

A key consideration for this year is how long the weakness in industrial demand that started midway through last year will drag on. Stocks said economic indicators currently suggest “things aren’t getting worse”. Indeed, UBS has said that new orders for UK capital goods firms outstripped inventory production for the first time in 21 months in January.

Definitive evidence of an upturn could take a few more months, Stocks said, although it is expected as the year progresses. Despite Boeing’s current woes, demand in aerospace remains robust and the length of industry order books “is sufficient to give us pretty good visibility”, he added.

Porvair’s earnings per share came in ahead of consensus forecasts, prompting Shore Capital to upgrade operating forecasts for this year and next by 3 per cent. It maintained its hold recommendation, though, citing a “premium” rating and the potential for greater returns elsewhere. Porvair’s shares still trade on less than 18 times consensus forecast earnings, though – well below their five-year average of over 22 times – and its cash generation has been strong enough to allow it to spend £24mn on acquisitions, capital expenditure, dividends and pensions without getting into debt. Buy.

Last IC View: Buy, 657p, 03 Jul 23