7th Nov 2014 11:00
LONDON (Alliance News) - Spirax-Sarco Engineering PLC on Friday added itself to the ever-growing list of companies hit hard by the strength of sterling, saying its operating profit and revenue for the year are expected to take a hit from currency translation, even as organic sales growth in the four months to the end of October increased.
The FTSE 250-listed engineering company said operating profit for the four months to October 31 was in line year-on-year on a constant currency basis, and said its operating profit margin for the year to the end of October was ahead on both a constant currency and reported basis, despite the headwinds coming from the strength of sterling.
The group said that if current exchange rates continue for the rest of the year, it expects 2014 sales will be down 6.3% on translation compared to the full year 2013 average exchange rates. But the impact on its operating profit is set to be even more severe, at an estimated 10% for the year.
In the four months to the end of October, the group saw organic sales growth at 4%, with growth largely consistent with the first half of the year in its four operating segments.
Its Watson-Marlow pump manufacturing business performed well in the period, with growth accelerating in emerging markets and North America, boosted by the Bio Pure Technology Ltd unit it acquired in January for GBP8.5 million.
The Steam Specialties business saw growth in Europe, the Middle East and Africa in line with the first half. In Asia Pacific, Spirax said it has started reducing its order book for the unit and expects this to continue for the rest of the year, in line with the traditional pattern seen in its fourth quarter. Americas sales increased in the four months, boosted by improvements in Latin America.
Spirax said the uptick seen in industrial production in its key markets since late 2013 has started to reverse, and said key economic indicators are pointing to lower growth in developed and emerging markets. It said its business is resilient, adding it is well placed to deal with any deterioration in economic conditions in its key markets.
The group said its order book for the year remains robust, backing its expectations for further sales growth in the rest of the year. The group said it is confident of making further progress in the final months of 2014.
Investec said its profit guidance and price target on Spirax remain under review, with both facing upward pressure on potential upgrades of consensus estimates for pretax profit.
The broker said the trading update from Spirax "reads well", with organic revenue growth accelerating against the first half.
Investec said the consensus pretax profit estimates, which are GBP2.2 million higher than its own estimate at GBP149.2 million, are "at least underpinned and could rise slightly", a sentiment it echoes for its full-year 2015 outlook.
It said that while Spirax's comments about slowing economic growth "should dampen any over-exuberance", the company is "rightly known for its reliable business model and execution".
The broker currently has an Add recommendation on the stock, despite Spirax being one of the most highly-valued stocks in its sector.
Spirax shares were down 0.03% to 2,880.00 pence on Friday.
By Sam Unsted; [email protected]; @SamUAtAlliance
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