Stifel downgrades Spirax-Sarco to 'sell'

Stifel said the full-year numbers were in line with much-lowered guidance and its outlook was broadly reassuring, if heavily second-half weighted and not without risk.

"But valuations, which have long looked full, seem to us to have drifted back into unrealistically elevated territory," it said.

"We cannot justify paying 33x forward price-to-earnings and more than 5x EV/sales for a relatively mature capital goods company, with low single digit earnings growth this year."

Stifel said maybe that could make sense when interest rates were close to zero, but it seems a "substantial" stretch in current conditions.

"Partial recovery in Watson Marlow and ETS this year - assuming these come through as hoped - looks set to be offset by adverse FX, some moderation in margins at Steam (from record highs), and by increased below the line costs - higher interest, higher tax.

"The result is that while the 2024 outlook initially sounded fairly solid, we have ended up cutting our 2024E EPS by another 6%."

Stifel said it thinks that Spirax's core steam division is a great high return business, but unlikely to grow much beyond low-mid single digits organically over time.

"Watson Marlow has clear scope for recovery, but the timing of that is highly uncertain, and we are less confident than the company that it will smoothly return to pre-covid growth rates once destocking ends," it said.

"And we remain unconvinced that ETS is as fundamentally appealing a business, in competitive or financial terms, as Steam. Diversification over the last decade seems to us to have increased cyclicality and complexity at the group, and we suggest that this should be reflected in valuations."

Stifel said Spirax is "a fine company", but it does not believe that its growth prospects are strong enough to justify multiples which are double those of the sector as a whole.

"Investors are typically loyal to what has been a great long term performer (until the last couple of years) - but we think now is the time, and the price, to think about redeploying capital in less headily valued companies."

At 1115 GMT, the shares were down 2.8% at 10,355p.