Spirax-Sarco hampered by post-Covid destocking

Several days after Spirax-Sarco Engineering (SPX) announced that Nicholas Anderson would be stepping down as chief executive in January 2024, the thermal energy specialist revealed half-year figures in line with market expectations, along with an 8 per cent hike in the interim dividend. Andreson's departure is part of a longstanding succession plan, but it is likely that his successor, current chief financial officer Nimesh Patel, will be faced by further macroeconomic uncertainties and a mixed outlook on global industrial production.

In a broadly positive, but somewhat patchy, performance, the thermal energy specialist benefitted from strengthening demand for its products and services in Steam Specialties and the industrial process focused divisions of its Electric Thermal Solutions business. This was set against weaker-than-expected volumes at its Watson-Marlow Fluid Technology Group due to destocking by its Biopharm customers post the Covid-19 pandemic.

Spirax-Sarco delivered a 13 per cent increase in revenue to £851mn, while adjusted operating profit contracted by 4 per cent to £172mn, with profitability constrained by a £13.9mn impairment relating to the implementation of a global enterprise resource planning programme within the Steam Specialties Business. The confluence of events resulted in a 360-basis point fall in the underlying profit margin to 20.2 per cent.

Net financing costs rose appreciably from H1 2022, and net debt (excluding leases) came in at £748mnn (FY 2022: £690mn), giving a leverage ratio of 1.8x cash profits.

UBS gives EPS of 369p, rising to 433p in 2024.

It is difficult to gauge whether the destocking will persist through the remainder of this year, but with the shares trading at 28 times forecast earnings, you’re left with the impression that the market is up with events. Hold.

Last IC view: Hold, 11,400p, 09 Mar 2023