Spirax: Highest-Quality U.K. Mid-Cap, Shares Near Multi-Year Low
Initiation of Coverage (SPX LN) (Buy): Shares are just 10% above their COVID trough; EPS fell in 2023 after Biopharm destocking but growth has now resumed.
Highlights
Spirax is a U.K. industrial mid-cap selling thermal and fluid control solutions.
It sells recurring “high-value low-ticket” products with “consultative sales”.
Shares are on 27x 2023 EPS, which fell 17% after destocking but is rebounding.
EPS growth is likely high-single-digits, and Spirax may be acquired at a premium.
At 8,450p, “standalone” forecasts show a 51% total return (12.8% IRR) by 2027.
Introduction
We initiate a Buy rating on Spirax Group, the U.K. thermal energy management and fluid technology solutions provider. We believe Spirax can deliver a 51% total return by 2027 year-end on a standalone basis, compound its EPS at high-single-digits annually long-term, and has a significant likelihood of being acquired at a material premium.
Spirax shares have halved from their all-time-high in November 2021, and are now just 10% above their COVID trough:
Spirax Share Price (Last 5 Years)
Source: Google Finance (01-Jul-24).
We had followed COVID closely prior to 2020, and were personally invested between 2018 and 2020, closing out our position at ~8,400p (with a 40% total gain) in March 2020. We have started buying Spirax shares again last week.
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