Spirax suffers from sterling’s strength

Brokers have downgraded their 1997 expectations of steam products and systems specialist Spirax Sarco against a background of adverse currency exchanges and slower growth in the Americas. However, revised sums still signal continued profit growth – for the 30th successive year. Stockbroker SGST has the shares on `sell’, and has cut £3m off its early […]

Brokers have downgraded their 1997 expectations of steam products and systems specialist Spirax Sarco against a background of adverse currency exchanges and slower growth in the Americas. However, revised sums still signal continued profit growth – for the 30th successive year.

Stockbroker SGST has the shares on `sell’, and has cut £3m off its early pre-tax estimate for the year down to £50m. The broker expects earnings to edge up 1p to 39p, and looks for a 1.2p dividend increase to 16p. Only twice in 29 years has Spirax not increased the payment.

With 87% of sales and 75% of profit generated overseas, the strong pound is bleak news for Spirax and market concern about the impact has knocked back the shares some 20% from their near-£8 high last year.

The 1996 results just reported – profits up 9% at £47.2m on sales up 8% at £272m – were below best expectations.

Favourable effects of a weak pound in the first half were more than offset by its strength in the second. Net effect on currency translation was a £3m fall in turnover. The strong pound also increased the cost to Spirax’s overseas subsidiaries of products it sent them from the UK.

The company did well to edge up its operating margins a slim 1% to 17.7% in a difficult year.

Return on capital was virtually unchanged at a commendable 37%.