Spirax-Sarco Earnings: Lower Demand at Watson-Marlow to Persist in 2023

Destocking from Watson-Marlow’s biopharma customers, who are still working their way through excess inventories bought during the pandemic, had a significant effect on wide-moat Spirax-Sarco’s first-half results and is expected to persist during the full year. Organic revenue grew 2% during first-half 2023, which, if we exclude biopharma customers, would have been 11%, highlighting that the remainder of the group remains structurally strong, growing significantly ahead global industrial production. We had anticipated destocking to be mostly complete by now and thus lower our 2023 organic revenue growth to 3.2% from 5.4% and our EBIT margin to 22.2% from 23.5%. Nevertheless, the group’s longer-term outlook remains firmly intact as does our GBX 11,800 fair value estimate. Shares are slightly undervalued.