Broker snap: Spirax story has further to run

9th Jul 2010 11:57

Panmure Gordon has reiterated its "buy" recommendation for Spirax-Sarco Engineering and bumped up its price target following the steam trap and pump specialist's pre-close statement on Tuesday."Organic growth rates are running as expected but mix and margins are developing favourably at a faster pace. With the factory changes and with growth in Asia, the story has much further to run in our view," Panmure analyst Oliver Wynne-James suggests.The broker's price target has been increased from 1720p to 1760p after it increased by 4% its earnings per share estimates for this year and next. Sales growth assumptions have been left broadly unchanged.The key changes concern margins rather than growth rates, with the broker seeing improvements as a result of "mix (more maintenance and pumps), input costs, the overhead reduction, some FX [foreign exchange] and then the operational gearing.""Going forward the drivers should be the factory footprint changes (up to 2% of sales gross enhancement), distributor consolidation, mix (pumps and Asia) and operational gearing, with some give back derived from FX and higher material costs," Wynne-James added.