Henrik Andersson of FW Invest presented his thesis on Spirax Group (UK: SPX) at European Investing Summit 2024.
Two Years On: Premium members, scroll down for an automated review of how this thesis played out from October 2024 to October 2026.
Thesis summary:
Spirax Group, formerly Spirax-Sarco Engineering, is a multinational, high-quality UK engineering group founded in 1888 and listed in London since 1959, with a market cap of about £5bn. Its three world-leading niche businesses provide knowledge, service and products for the control and efficient use of steam and other industrial fluids. Henrik argues an ESG valuation run-up, a COVID profit bubble, complacency in its newest division and sluggish industrial production make it time to be contrarian on a multi-decade compounder.
Steam Thermal Solutions (STS), the leader in commercial steam systems with just over 15% of a £5bn-plus market, earns 54% of revenue and 59% of EBIT. Electric Thermal Solutions (ETS), critical electric heating built through four acquisitions starting with Chromalox in 2017, contributes 22% and 16%. Watson-Marlow (WM), the world leader in peristaltic pumps, with half its demand from biopharma, adds 23% and 25%. About 85% of revenue comes from customers’ maintenance and operating budgets, sold directly by 2,100 engineers.
Henrik’s case rests on three highlights. Moat durability: Spirax is resilient, with attractive long-term fundamentals, growing organically at 2.1x to 2.4x industrial production while declines have tracked about 1.0x. Net zero: with over 90% of industrial process heat still from fossil fuels, Spirax is positioned to play a critical role in the transition, STS and ETS “connected at the hip.” TAM expansion through innovation, application engineering and M&A: the market grew from £4.6bn in 2013 to £12.5bn in 2023, heading toward about £17bn by 2030.
Henrik calls the problems fixable. ETS was too M&A-hungry, with complexity at its Ogden facility and a bloated setup; a proven Watson-Marlow leader now runs it, shifting from low- to medium-voltage products, value-based pricing and bespoke offerings. WM grew over 50% during COVID and is returning to 8-10% growth at margins above 30%. CEO Nimesh Patel (since January 2024) and CFO Louisa Burdett prioritize capex, the 56-year record of dividend increases and cutting leverage from about 3x to below 2x.
Group targets are organic growth of 2x industrial production (about 6-7%), EBIT margins back to 23-25% from about 20%, capex of 5-6% of sales and cash conversion above 80%. Henrik believes a business earning about 20% ROE and compounding EPS above 10% warrants 25x earnings, against an ESG-era P/E near 50x. From 6,700p, that implies about 50% upside on conservative 2026 estimates. The risks he would watch are margin recovery, ETS organic growth and the pace of debt reduction.
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European Investing Summit 2024 was held from October 29 to 31, 2024. The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.
