Porvair performs in uncertain market

Filtration specialist Porvair (PRV) isn’t getting too much wrong. Despite facing a difficult-to-read market that has led to “inconsistent order patterns” over the past three months, it continues to record double-digit revenue and profit growth.

The company admits trading has been “mixed” with strong demand from customers in a recovering aerospace market and in petrochemicals underpinning growth in its metal melt and industrial businesses. This is helping to offset weakness in demand for laboratory and industrial consumable products. Its laboratory business already reported a 6 per cent decline in first-half revenue. 

Other things going its way include an easing of supply chain pressures, although inflation both in terms of wage demands and services remains high.

Still, it managed to pass on cost increases and profits grew faster than sales – the result of better aerospace orders and productivity investments made in recent years, the company said. Cash generated from operations of £8.2mn was also a £1mn improvement on the previous year and it remains debt-free. 

The difficulty for investors is in judging how well it will cope with an expected second half industrial slowdown. On aggregate, order levels remain high and chief executive Ben Stocks said he expects Porvair's full-year results will be ahead of last year.

He also pointed out that its long-term earnings record (adjusted EPS has grown at a compound annual rate of 13 per cent over the past decade) is underpinned by ongoing trends such as tighter environmental rules, the growth in analytical science and the need for cleaner water.  Yet the fact that the company’s share price remains below both its five-year average and its peers shows there is some trepidation among investors about its prospects. 

Porvair’s shares have flatlined over the past three months. They trade at almost 19-times FactSet consensus forecast earnings, which admittedly does not sound like bargain basement territory but it is a significant discount to the multiples that peers such as Pall and Clarcor were bought for in recent years, analysts at Investec point out. Many of its metrics are also still improving on the back of a busier aerospace market – return on capital employed jumped by three percentage points to 16 per cent. Given its solid track record, we think the shares are worth a buy.

Last IC View: Hold, 580p, 30 Jan 2023