19th Jun 2024 10:39
(Alliance News) - Spectris PLC's profit warning raised alarm bells on Wednesday with analysts fearing it may not be the last.
The London-based supplier of high-tech instruments, test equipment and software for industrial applications warned full-year profit would be below expectations after a system overhaul took longer than expected and amid tough trading conditions at Malvern Panalytical.
Spectris said the roll out of a new enterprise resource planning system had disrupted operations longer than hoped.
As a result, Spectris expects around GBP15 million of sales and GBP10 million of operating profit to move into the second half of the financial year with no impact on the full year as operations return to normal.
Additionally, in Malvern Panalytical, the combination of weaker demand in China, a significant reduction in battery development, associated with the slowdown in sales of electric vehicles, and continued, subdued trading in pharmaceuticals, is expected to reduce sales and operating profit by a further GBP15 million and GBP10 million respectively in the first half.
As a result, Spectris now expects adjusted operating profit to be at, or marginally below, the bottom end of the range of consensus analyst expectations for the full year.
Spectris said a company compiled analyst range for adjusted operating profit for financial 2024 is between GBP232 million to GBP259 million.
Trading across other businesses is in line with expectations, Spectris added.
Russ Mould at AJ Bell said what may set alarm bells ringing is the guidance for a heavy weighting to the second half of the year.
"There is a danger that Spectris cannot make up any first-half shortfall and ends up being forced to warn on profit again," Mould cautioned.
"Because the issues relate to the introduction of a new software system this is under the company’s control but given its problems of late this may not inspire a huge amount of confidence," he added.
Mould noted the company is also facing external headwinds including weaker demand in China and a significant reduction in activity around battery development, linked to a slowdown in the electric vehicle market.
"With the company having completed a planned rationalisation of the business with the sale of its Red Lion Controls unit it’s not obvious what could get investors interested in the story again," Mould said.
In December, Spectris sold Red Lion Controls to HMS Networks for GBP286 million.
Mould did suggest that the combination of a slimmed down operation and a beaten down share price might attract opportunistic M&A interest, noting Spectris itself tried for a merger with rival Oxford Instruments in 2022.
Spectris shares fell 8.0% to 2,950.00 pence each on Wednesday morning in London.
By Jeremy Cutler, Alliance News reporter
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