Spirax-Sarco Engineering PLC ups forecasts as global industrial production growth

PLC (), the FTSE 100-listed engineer, remained bullish about its ability to expand faster than the rate of global industrial production growth.

“The world is recovering faster than previously anticipated from the adverse economic effects of the COVID-19 pandemic, supported by sizeable fiscal stimulus packages,” the company noted, with global industrial production now forecasted to expand 8.5% in 2021 compared with the forecast of nearer 7% back in March.

Spirax said it now anticipates the Watson-Marlow’s fluid technology subsidiary will enjoy 55% organic sales growth to the pharmaceutical & biotechnology sector this year, due to continuing strong COVID-19 related demand, following a year when it accounted for over 55% of the unit’s sales.

The rest of the group is expected to grow above the increased forecast for global IP growth, led by Electric Thermal Solutions, which ended last year with a higher than-normal order book.

Group operating margins are also higher than management previously anticipated due to operational leverage, despite disruption to global supply chains and the related increased raw material and freight costs.

The board is upping investment in capacity, especially at Watson-Marlow, but even taking this into account, the full-year drop-through from the increase in organic sales to operating profit is expected to be close to 35%, which is higher than previous guidance.

Shares in SPX, which hit an all-time high close to 12,300p last month, rose almost 3% to 11,850p in early trade on Wednesday.

Broker Shore Capital said it expects to upgrade its 2021 revenue forecast by circa 5% and circa 3% for 2022, and to upgrade its adjusted operating profit forecasts by circa 10% and 6% for the same years.

“We believe strong margin progression and a positive outlook for industrial production provide short-term positivity. In the long-term, we believe Spirax can continue gaining market share and significantly outperform the wider sector. We previously suggested that its share of the fragmented steam specialities and electric thermal solutions markets could still be as low as 30% by 2030, even with the current rate of market share gains continuing, leaving plenty of room for future growth beyond a ten-year horizon.”