Berenberg slashes target price on Spirax Group

Berenberg said the group's downgraded guidance for 2024 and the implications for 2025 were of great importance. In addition, Spirax's interim report included some strategic updates and refinements, which, in its view, while mostly already known, included some incremental areas of focus implying to the analysts that internal operational effectiveness, geographic business exposure trends and strategic execution were worse than it had considered in its "cautious initiation note" earlier in the year.

Berenbeg, which reiterated its 'hold' rating on the stock, said the challenges confronting the business did not appear to be much closer to resolution, leaving it to remain cautious on the stock going forward.

"While we acknowledge that our earnings per share revisions probably get us closer to the bottom for this cyclical low, with improvements in semiconductor and biopharm to play out on a 12-month view, our concern from our initiation remains: that the business faces strategic and operational challenges that have not been fully appreciated by consensus, or at least have been confirmed at the results by management as being of a magnitude that we had not envisaged, perhaps exacerbated by the incremental cyclical slowdown in both China and the US," said Berenberg.

"With a lot to work through for management, valuation at 27.1x 2024E P/E and 19.9x EV/EBIT remains a barrier to our becoming more positive considering the current returns profile and extended time frame for recovery."

Reporting by Iain Gilbert at Sharecast.com