MIDAS SHARES TIPS: Scorching profitability… Vapor technology pioneer Spirax Group is good advice

Wuhan Central Hospital was unusually busy in April 2020. The first place Covid-19 was diagnosed four months earlier, Wuhan’s main health center, was packed with desperately ill patients and overworked staff.

It was then that the steam system stopped working, so there was no heat, no hot water and little chance of properly caring for the sick. A brave engineer, dressed in head-to-toe protective gear, entered the complex and fixed the problem.

That man worked for Spiraxa Cheltenham based company that has become the world leader in steam products, technology and know-how. Steam is used in almost every industrial process there is, from the manufacturing of complex chemicals to the making of jams.

Simple to produce and very efficient, steam heats buildings and products, cleans and sterilizes equipment, cooks food, produces hot water, humidifies spaces, and offers many other applications. Spirax equipment ensures that steam reaches its potential, reaching the right points at the right time, at the right temperature and with the right pressure.

Clients range from multinationals such as Diageo, Mars and Nestlé to brewers and car manufacturers, hospitals, water companies, oil majors and mining companies. The group works with more than 100,000 companies operating in 160 countries around the world.

Many companies have worked with Spirax for years, not only because their equipment is high quality but also because the group offers specialized advice from 2,100 experienced engineers who interact directly with factory managers to find out what they need and how best to deliver it. .

Founded in 1888, Spirax specialized in steam from the beginning. Later, however, it expanded into electric heating and fluid technology. The fluids business is all about pumps, tubing, connectors and other components that help liquids move from one place to another, often in sterile environments, where safety is paramount.

Clients operate in sectors ranging from beer to biotechnology. Pharmaceutical companies account for about half of sales in this business, and many products are single-use and used in cutting-edge processes such as cell and gene therapy.

The third element of the Spirax group focuses on the supply of heating systems and electric boilers. Steam can be used at temperatures up to 360°C. Some areas of the industry need much more. Part of the process behind semiconductor manufacturing, for example, requires temperatures of 450°C for hours at a time without any variation.

Spirax provides the element that makes this happen and the group is working on new products capable of delivering temperatures in excess of 700°C.

Electrification can have a dramatic impact on customers’ carbon footprint. Today, around a fifth of global carbon emissions come from heat used in industry – more than all the cars, planes, trains and trucks in the world combined.

Electrical systems can make a dramatic difference, particularly when powered by renewable energy, such as wind or solar. Spirax CEO Nimesh Patel is on a decarbonization mission, encouraging steam customers to switch from oil and gas-fired systems to their electric equivalents and finding new companies that are attracted to this type of technology.

The group is a pioneer in this field and Patel believes it can generate billions of pounds in revenue over the next decade and beyond.

Recent times have been difficult for Spirax. The group’s fluid technology business helped make Covid vaccines, so revenues rose as they were injected into the world. Companies also replenished vigorously after the pandemic, causing sales and profits to soar in 2021 and 2022.

However, conditions changed last year as interest rates rose, economic growth faltered and many companies curbed new orders. Spirax profits fell in 2023 and first-half results fell short of expectations.

Now, however, the company appears to be on the brink of recovery. A recent trading update pointed to stable sales and profits this year, reassuring brokers who feared tough conditions could take their toll.

Next year, sales are expected to rise by around 6 per cent to £1.8 billion, approaching £1.9 billion in 2026. Profits are forecast to rise more than 11 per cent to £321 million in 2025, surpassing £360m the following year.

Spirax also has an enviable dividend track record: 56 years of consistent growth, with more expected from now on: £1.64 by 2024 and over £1.70 by 2025.

Midas Verdict: Spirax has a long history of unbridled growth and its stock price reflects that record. The recent disappointment has seen the shares spiral from £161 to £71. They should go up from here, making this a good time to buy.

Traded in: Aim Heart: SPX Contact: spiraxgroup.com