Two brokers looking at Spirax Group PLC (LSE:SPX) after its latest results agree on one thing: earnings momentum is improving, but they part ways on how much that is worth paying for.
Citi is firmly in the bull camp. It sees the latest update as a potential turning point after two years of downgrades linked to destocking in Watson-Marlow, weakness in electric thermal solutions (ETS) and some currency drag.
With the biopharma cycle picking up and ETS showing both cyclical recovery and better execution, Citi reckons 2026 could bring faster revenue growth and margin expansion. Volume recovery at Watson-Marlow and self-help in ETS should add to that.
Citi has lifted its forecasts by about 3% for FY25, rolled its valuation forward to FY26 and taken its target price up to £84, keeping a buy rating.
The share price jumped about 13% on the day, more than the earnings upgrade, which Citi says reflects investor relief that the tide on estimates may finally be turning.
Stifel is more measured. It has upgraded the shares from sell to hold, noting that the sharp market reaction to what were essentially in-line first-half results and unchanged full-year guidance shows just how low expectations had sunk.
News of recovery in biopharma and semiconductors is welcome, as is a hint that conditions in China and Korea are bottoming for its steam thermal solutions (STS) unit.
But most of the benefits from efficiency savings and volume improvement are being reinvested, and Stifel’s operating assumptions are little changed, with only a modest earnings per share lift from lower finance costs.
Valuation remains the sticking point. At around 7,005p (up 2.4%), Stifel still sees the shares as fully priced given questions over how quickly the group can turn the decarbonisation opportunity into meaningful profit, and how muted STS growth might be until that happens.
That said, after a long run of underperformance, it thinks the balance of risk is now more even and earnings momentum has improved enough to warrant a less negative stance.
In short, both brokers see signs that Spirax is through the worst of its earnings downgrade cycle. Citi is convinced this is the start of a sustained upswing and has set its sights firmly higher.
Stifel is more cautious, upgrading only to 'hold' and keeping its valuation discipline intact.