Spirax: Focus on Self-Help, Lower for Longer After Investor Day?
Company Update (SPX LN) (Buy): The market has reacted badly to last week’s investor day, but we think the pessimism is overblown.
Highlights
Shares have fallen 7% since investor day last week to a new 52-week low.
HSD medium-term EBIT growth still expected, but will be achieved differently.
Slower global industrial production growth means more focus on self-help.
Downside is limited: recurring revenues and only one segment needs fixing.
At 6,993p, base case forecasts show a 49% total return (13.7% IRR). Buy.
Introduction
We review our Buy rating on Spirax after the company held its first investor day under CEO Nimesh Patel last Thursday (October 3); shares have fallen another 7% since investor day, and closed at their lowest level in the past year:
Spirax Share Price (Last 1 Year)
Source: Google Finance (08-Oct-24).
We initiated a Buy rating on Spirax last July, and added it to our “Select 15” model portfolio as a mid-sized position in the same month. Shares have lost 17% since our initiation, though the U.K. Pound has risen ~3.5% in the same period.
We now believe Spirax can deliver a 49% total return (13.7% annualized) by 2027 year-end, driven by a back-loaded high-single-digit EPS CAGR and a rating recovery. Shares are at 25x 2024 EPS even if we assume EPS falls 10%. Upside will be larger if Industrial Production (“IP”) growth reaccelerates and/or if Spirax becomes an acquisition target.
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