Spirax: Recovery Postponed with H1 Results; Back to 2020 Low
(SPX LN) Company Update (Buy): Cyclical headwinds will last longer, and China is now a further weak spot, but 2024 EPS is likely the trough.
Highlights
Shares have fallen ~10% after H1 results, basically back to the 2020 COVID low.
Biopharm and Semicon downturns to last longer; China was a further weak spot.
We see EPS fall 8.5% in 2024, but this is likely the trough and gives a 27x P/E.
Headwinds are cyclical and EPS CAGR should rebound to 5.5% across 2019-27.
At 7,715p, our forecasts show a 55% total return (14.1% IRR) by 2027. Buy.
Introduction
We review our Buy rating on Spirax after the release of H1 2024 results last Thursday (August 8). Shares fell by 10.3% in the following two days, before rebounding by 0.7% today to 7,715p, within 1% of its COVID trough in March 2020:
Spirax Share Price (Last 5 Years)
Source: Google Finance (12-Aug-24).
We first published our research on Spirax online with a Buy rating in July, having followed the company since 2016. Spirax’s share price is currently 8.7% below the level at our initiation.
The cyclical downturns in Biopharm and Semicon are now set to last longer than expected, and weak macro in China has become an additional headwind. Adjusted EPS fell by 11.6% in H1, on the back of a 0.5% organic decline in Adjusted EBIT, due to currency, a higher interest rate and a higher tax rate. We expect Adjusted EPS to trough in 2024 after a further 8.5% decline. This implies a P/E of 27x on trough EPS, and earnings recovery should generate a mid-teens annualized return by 2027 on a standalone basis. Being acquired at a premium remains a significant possibility.
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