Spirax-Sarco shares dip as pandemic continues to hamper industrial production

FTSE 100 listed steam management and engineering firm, Spirax-Sarco (LON:SPX), saw its shares fall on Wednesday, as the company noted the lingering effects of the COVID pandemic on industrial activity.

During the second quarter, industrial production (IP) fell by 12%. Although this improved to a 4% year-on-year decline during the third quarter, the company noted that two consecutive months of growth ‘slowed markedly’ in August and September, as activity began to approach pre-pandemic levels.

Spirax-Sarco said that trading has ‘continued to hold up well’ even against the challenging macroeconomic backdrop. All of its facilities remain open, and organic sales decline in the four months to the end of October was less pronounced than during the first half.

Its Steam Specialities business benefitted from the reduced IP contraction and IP growth in China. Its Electric Thermal Solutions business saw similar trends, with a continued decline in its Chromalox product was offset by growth in its Thermocoax offering. Finally, the company said that the Watson-Marlow Fluid Technology Group enjoyed strong sales to the biopharmaceutical sector.

Group operating profit remained ‘slightly below’ the same period the previous year, and the company noted that currency effects continued to have ‘an adverse impact’, as sterling maintained strength versus its basket of trade currencies.

Speaking on its outlook, the Spirax-Sarco statement read: “After reaching a low point in the second quarter when global IP contracted 12%, macro-economic conditions improved in the third quarter with a global IP contraction of 4%. IP is now forecast to contract by an overall 5.5% in 2020. ”

“However, the sequential month-on-month rate of IP growth slowed markedly in August and September, infection rates remain high in the Americas and increasing levels in Europe are resulting in further lockdowns. Although the impact on IP growth in the fourth quarter resulting from the COVID-19 resurgence remains uncertain, these factors could further slow the rate of IP recovery in the final quarter of 2020, as we anticipated at the Half Year results announcement in August.”

Following the news, the Spirax-Sarco shares dipped by around 4.5%, down to 11,370.00p a share 18/11/20. Analysts currently have a consensus ‘Hold’ stance on the stock, and a target price of 8,549.23p, around 25% below its current level.

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Senior Journalist at the UK Investor Magazine. Also a contributing writer at the Investment Observer, UK Property Journal and UK Startup Magazine. Postgraduate of King's College London with a specialisation in Business Ethics. Interested in Development Economics and David Hume.