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Numis downgrades Spirax-Sarco following strong share price run, valuation concerns

Spirax-Sarco shares have increased in value by more than 15% over the last year
An engineering plant
Numis analysts struggle to see enough upside with Spirax to maintain its 'add' rating

Stockbroker Numis Securities has downgraded its recommendation on Spirax-Sarco Engineering PLC (LON:SPX) shares to ‘hold’ from ‘add’ following its first-half results.

FTSE 250-listed Spirax-Sarco on Wednesday reported strong growth in first-half operating profit, driven by good performances from its Stream Specialities and Watson-Marlow businesses, and said its full-year expectations remain unchanged.

READ: Spirax-Sarco first-half profit rises despite adverse currency hit

However, broker Numis is unsure whether the company can justify its valuation and keep up its strong recent performance.

“We have no doubt that Spirax's strong, consistent long-term track record is deserving of a significant premium to the sector and believe there is upside risk to our revised estimates (H1/H2 EBITA weighting 48%/52% vs 4yr avg 43%/57%). Even so, the recent share price run has pushed Spirax to a price-earnings ratio of 27x, which means we struggle to see sufficient upside on a 12 month view to maintain our ‘add’ rating,” Numis analysts said in a note to clients.

Spirax shares, which have increased in value by more than 15% in the last year, were 2.6% up at 7,000p in mid-morning trade.

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Spirax-Sarco Engineering Timeline

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