The FTSE 100-listed steam and pumps specialist reported sales of £569.7mln for the first six months of 2020, down 4% year on year compared to global industrial production which fell 7.9% over the same period.
As a supplier to sectors including hospitals, pharmaceuticals, food and drinks and utilities, all of the group’s factories and warehouses worked throughout the pandemic, with only a small effect from local shutdowns.
Group adjusted profit before taxation (PBT) fell 8% to £114.5mln, and statutory PBT fell by 2% to £106.3mln, both ahead of board expectations after what Spirax's chief executive Nicholas Anderson said was “stronger than anticipated cost containment and efficiency improvement initiatives”.
An interim dividend of 33.5p per share was declared, an increase of 5% on a year ago.
In the results statement, Anderson added: “As hopes of a V-shaped recovery recede, we now anticipate a lower rate of economic activity in the fourth quarter. As a result, we believe that organic revenue growth in the second half of the year will be lower than we anticipated in May.”
However, the stronger profits in the first half mean the board’s expectations for the full year are unchanged, bolstered by 85% of the company’s product demand coming from clients’ operating budgets and a high proportion of our revenues from sectors less impacted by COVID-19.
Shares in the company fell 2% on Wednesday morning to 10,425p.
Broker Peel Hunt said it was leaving its forecasts untouched for full-year revenue of £1,165mln, adjusted PBT of £235.7mln and diluted EPS 226.5p, keeping its recommendation at 'hold' for an “exceptionally resilient performance”.
Over at Shore Capital, where the analysts have a 'sell' rating on the shares, they noted that the shares are trading close to all time highs after a 13% ascent over the last 12 months despite consensus forecasts for 2020 EPS and 2021 EPS being 16% and 10% lower over the same timeframe.
“We are impressed by the resilience demonstrated by Spirax relative to Industrials peers, but believe the shares are overvalued at 44x consensus’ 2020 EPS forecast, especially given the short-term outlook for industrial production.”
ShoreCap expects to introduce new forecasts for the first time since March, estimating that revenue will fall 3-5% for the current year and adjusted operating profit to be down 8-12%.
“We expect to maintain our 'sell' recommendation, as we think the risks the company faces may be greater than the market perceives with only around half of its revenue driven by defensive markets. Although c.50% of Spirax’s revenue is driven by small £1k-£2k tasks, its growth is still largely dependent on increased industrial production. The group’s average order book is seven weeks, so there is very limited visibility.”
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