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Porvair maintains long-term earnings growth record

Filtration technology supplier Porvair (LON: PRV) beat expectations and forecasts have been upgraded. Underlying demand for the company’s products remains strong with clean water and other clean technology areas propelling growth.

Porvair has an impressive long-term growth record with organic earnings growth of 12%/year over a fifteen-year period.

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In the year to November 2023, revenues edged up from £172.6m to £176m, while margins were much improved. That enabled pre-tax profit to rise from £19.4m to £21.4m. The total dividend was raised from 5.7p/share to 6p/share.

There were parts of the business that were hit by destocking as lead times for products returned to normal levels. Industrial and laboratory consumables were hit. The former is still being affected by destocking, but it appears to have stabilised for the laboratory business.  

Aerospace demand is improving, and petrochemical demand is also rising. Both aerospace and industrial and metal melt quality divisions improved their margins. The laboratory division margins declined, but they are still the highest in the group.

The business is highly cash generative and net cash was £14.1m at the end of November 2023. That is before paying £10.3m for European Filter Corporation NV (EFC) in December.

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Belgium-based EFC manufactures mist elimination filters used in producing industrial feedstocks and it provides distribution channels for existing Porvair products.

Future

The industrial division will continue to be hit by destocking in the first half but could return to growth in the second half. Foreign exchange movements could hold also back progress. Shore expects a 2023-24 pre-tax profit of £22.5m and the dividend is forecast to increase to 6.8p/share – covered 5.5 times covered by forecast earnings.

Water regulation is being tightened in the US and there is also regulation expected for flue gas industrial emissions. Environmental legislation is likely to continue to gain momentum and Porvair will benefit from much of it. There is also more use of aluminium in electric vehicles.

At 660p, the shares are trading on less than eighteen times prospective earnings. Even after paying for EFC, net cash could be back up to £13.3m at the end of November 2024. That provides funds for further acquisitions. The long-term prospects make the shares attractive.

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