Spectris raises guidance

Spectris (SXS) has upgraded its full-year guidance after achieving double-digit revenue growth and a “record” adjusted operating profit in the first half of 2023. The precision measurement solutions company now expects organic sales growth to be ahead of its previous estimate of 6-7 per cent, but – ironically, given its expertise – did not provide an exact figure. 

Sales jumped by 23 per cent to £703mn between January and June, with every part of the business achieving some level of growth. Life sciences put in the least impressive performance, with like-for-like sales increasing by just 1 per cent. Management said this reflected “normalisation of demand after strong growth in 2022”. However, the group’s five other divisions – which serve clients such as car makers, miners, and academic researchers – all achieved double-digit sales growth.

Spectris also managed to widen its operating margin from 12.7 per cent to 14.5 per cent in the period, meaning its adjusted operating profit shot up by 41 per cent to £102mn – its highest ever. Management is confident that margins can improve even further, and is forecasting a full-year adjusted operating profit of £250m-£265mn. This would represent growth of 16 per cent.

All eyes are now on the order book. Order intake was down by 5 per cent on a like-for-like basis in the first half of 2023. Management said this was because supply chains had eased, meaning lead times have reduced. However, the order book is still roughly the same size as it was at the end of December, and the group is targeting markets with a “strong sustainability focus” in a bid to amplify demand. 

With a forward price/earnings ratio of 18, Spectris is more expensive than other electronics companies. However, its high-tech offering, strong balance sheet and excellent margin growth make it very attractive. Buy.

Last IC View: Buy, 3,367p, 23 Feb 2023