Stifel upgrades Spirax to “hold,” lifts target price to 6,450p on balanced risks

Investing.com -- Stifel has upgraded its recommendation for Spirax Group (LON:SPX) to “hold” from “sell” and raised the price target from 5,750p to 6,450p, citing a more balanced risk profile and improved earnings momentum following the company’s first-half results, in a note dated Wednesday. 

The upgrade comes despite largely unchanged financial forecasts, as earnings per share estimates for 2025 and 2026 have been revised upward by 2.5% and 0.5%, respectively, due to lower expected finance costs rather than operational changes.

The shift in stance follows a sharp positive market reaction to interim results that were broadly in line with expectations and full-year guidance that remained unchanged.

Stifel said the strong share price performance suggests prior market expectations had fallen too far, with some forecasts sitting well below both the company’s outlook and Stifel’s estimates. 

The 2025 revenue forecast has been trimmed by 0.2% to £1.68 billion, while the adjusted operating profit forecast is now £337.4 million, up slightly from earlier projections.

Key drivers for the improved tone included signs of stabilisation in important markets such as biopharma and semiconductors, a slower rate of decline in capital projects in China and Korea, and double-digit growth in maintenance, repair and operations sales in those regions. 

Watson-Marlow’s biopharma orders exceeded sales for the first time since the pandemic, and lower-than-expected capital expenditure in the first half improved deleveraging prospects.

However, Stifel noted that sales and profits were still slightly down year-on-year in the first half, with reported profit falling nearly 30% after £52 million in charges and adjustments. 

Full-year performance remains heavily weighted to the second half, with 53% of profit expected in that period. 

Industrial production growth forecasts for the second half have also been cut from 2.1% to 1.7% excluding China, signalling a continued challenging backdrop for the core steam business, which accounts for about 55% of profit.

Stifel maintained that Spirax’s valuation remains full when compared with peers such as Rotork, Weir and IMI, even when giving credit for delivering near- and mid-term targets. 

While the long-term decarbonisation strategy remains attractive, the report emphasised that the company itself sees this as a decades-long opportunity rather than an immediate growth driver.