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Spirax-Sarco flags tough second half

The manufacturer of steam management systems is disappointed by the performance of its Chromalox business
August 7, 2019

Spirax-Sarco (SPX) prepared investors for a difficult trading period, warning that “second-half trading conditions will be below our earlier estimates” after a first half that exceeded expectations.

IC TIP: Hold at 8,105p

The valves and pumps fabricator anticipates a particularly tricky time for its steam specialities business. It expects organic sales growth to more than halve, due to weaker-than-forecast global industrial production and the “non-repeat nature” of some of its first-half activities, which included several large orders in China and South Korea and a currency translation-driven profit boost last year in Argentina.

Spirax is addressing “unsatisfactory profitability” at its Chromalox business, a $415m (£341.6m) acquisition made in 2017 that specialises in industrial process heating and temperature management in the US. Chromalox's operating profit margin contracted by 500 basis points to 9.7 per cent over its first half, while adjusted operating profits fell by 37 per cent. “The only disappointment of this period was a profitability deterioration in Chromalox,” chief executive Nicholas Sanderson admitted. The business nevertheless grew sales by 15 per cent and the company is planning for similar levels of sales growth in the second half.

Broker Peel Hunt left its full-year 2019 pre-tax profit forecast unchanged at £266m, and expects a rise to £281m in 2020.

SPIRAX-SARCO (SPX)   
ORD PRICE:8,105pMARKET VALUE:£5.97bn
TOUCH:8,100-8,105p12-MONTH HIGH:9,440pLOW: 5,875p
DIVIDEND YIELD:1.3%PE RATIO:27
NET ASSET VALUE:1,056p*NET DEBT:45%**
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201854810710529.0
201959110810232.0
% change+8+1-3+10
Ex-div:10 Oct   
Payment:8 Nov   
*Includes intangible assets of £770m, or 1,047p a share **Does not include lease liabilities of £41.3m