Porvair well worth the premium

Over the past five years, based on Sharepad data, Porvair has grown revenues at a compound annual growth rate of 7.4 per cent while underlying EPS has grown by 12 per cent. In a year-end update, ahead of full-year results scheduled for 29 January, the group revealed that pre-tax profits would be ahead of expectations, which continued a virtuous cycle of analyst earnings upgrades.

The aerospace, seal analytical and aluminium filtration businesses continue to perform well, although operating profit was held back by the impact of Chinese start-up costs on the metals filtration division, which accounted for 31 per cent of 2016's turnover and 15 per cent of profit. Meanwhile, the order books for the start of the new financial year was described as “healthy”.

Importantly, the company has been investing in growth both internally and through acquisitions. First-half capital expenditure was up from £2.7m to £4m as the company spent on new products and pushed into new markets. This spending should be welcomed based on a first-half return on operating capital, which excludes pension liabilities and goodwil of 43 per cent. Wherever possible, the group seeks to entwine intellectual property with product developments, so around one-third of the top line is now derived from patent-protected products.

Meanwhile, acquisitions over the last financial year totalled £11m. . 

The heavy spending has resulted in net cash dropping from £13.6m to £9.7m in the 12 months to 30 November (numbers in the accompanying table reflect the seasonally-weaker half-year position). The company's balance sheet also carries a pension deficit of  £16.6m.