Berenberg raises target price on Spirax-Sarco

Berenberg noted that organic guidance was "slightly better than consensus", but with near-term offsets in FX, interest, and tax which dragged its earnings per share forecasts lower.

"We think the guidance is good in the context of the current market environment, albeit with the caveat of H2-weighting and caution about a global industrial production recovery in H2 2024," said Berenberg. "Management's apparent confidence in returning to growth in the semiconductors business is a slight improvement versus previous management commentary in our view, but bakes in some management hope ahead of actual evidence of this."

The German bank noted that there were "many moving parts" in terms of cost actions, investment, and organic developments, but stated that guidance still appears to be a "slight net positive" at the organic level and said it "can understand" yesterday's positive reaction in shares, even if perhaps it was "a bit stronger" than it had expected.

That said, Berenberg stated that while the "commentary and confident presentation" addressed some of the concerns it had in parts of the Spirax businesses, there were still further developments that it believes need to take place to justify the current valuation.

"We make small changes to earnings reflecting slightly better organic guidance offset by FX/interest/tax. The stock now trades on 33.2x 2024 P/E, 23x EV/EBIT and 1.7% FCF yield," said Berenberg, which reiterated its 'hold' rating on the stock.

Reporting by Iain Gilbert at Sharecast.com