Spirax-Sarco makes splash with special dividend and underlying strength

5th Mar 2015 09:45

Investors and analysts overlooked stiff currency headwinds buffeting steam systems specialist Spirax-Sarco Engineering last year and instead focused on the strong underlying progress and a whopping 120p special dividend.Statutory results showed revenues down 2% to £678.3m and adjusted profit before tax flat at £153m.But underlying profits were up 12% after a coincidental 12% currency effect, with 50 basis points of operating margin progress and organic revenues up 4% if forex and acquisitions were ignored.Underlying earnings were roughly flat at 140.4p, or up 13% before currency effects, but cash inflow was again strong with cash conversion leaving net cash of £52m at the year end.In light of this, directors recommended a 9% increase in the total dividend to 64.5p per share and, combined with a review of the company's capital requirements, have decided to return £91m to shareholders by way of a 120p special dividend. This will also be combined with a share consolidation.In the face of an unhelpful economic background and currency issues, chief executive Nick Anderson hailed the resilience of the business.Niche pumps business Watson Marlow, which focuses on the food, pharmaceutical, chemical and environmental industries, made a strong contribution to underlying profit growth and widened its direct sales approach into India.The steam specialities business was driven by steady investment in products and channels to market, with Anderson highlighting applications in many staples end-markets such as food and beverage, pulp and paper and pharma, along with some that are more cyclical."We are increasing investment and adding resources in support of our growth strategy and we are confident that, through these actions, we can continue to outperform our markets and deliver further improvements in our business," Anderson said.His assumption is that, overall, the world economy will be no better in the current year than in 2014.If recent exchange rates prevail for the full year, there would still be a small translation headwind to sales of 2% in 2015 as the weaker euro outweighs the benefits of the stronger dollar.Broker Investec said: "Today's news has all of Spirax's typically positive characteristics and investors should be very content with the group's progress. We expect estimates to rise a little and there will also be upward pressure on the share valuation."Numis admitted the rating was not cheap but with a 120p special dividend announced the current price provides "an all too infrequent entry point into this stock". It upgraded its rating from 'hold' to 'add' for the "high quality business" as increased investment starts to come through to the top and bottom line".