Goldman Sachs upgraded its stance on shares of Spirax-Sarco Engineering to ‘neutral’ from ‘sell’ following the company’s first-quarter trading update on Thursday.
The bank noted that since adding the stock to its sell list on 3 July 2019, the share price is up 25% versus the European Capital Goods average up 40% and the FTSE World Europe up 5%. It said Spirax’s outperformance versus the FTSE World Europe is due to many factors including the outperformance of capital goods companies, ESG exposure and a resilient performance during the coronavirus pandemic.
Although it continues to believe that Steam Specialities’ ability to outgrow local IP is diminishing and expects it to only marginally outperform over its forecast period, Goldman said it has materially increased its estimates for Watson Marlow, which has outperformed its expectations over the last few years.
Goldman said it expects the Watson Marlow business to grow organically in 2022 and 2023 due to the pace of vaccine roll-outs across most of the world – in particular emerging markets – potential need for booster shots, possible duplication of vaccine supply chains and an accelerated adoption of biotechnology following the success of mRNA vaccines.
“Further out-performance of Watson Marlow should benefit the group mix (given it has higher EBIT margins) but also due to the fact a greater share of Watson Marlow sales is ‘multiple-accretive’, and should trade at a much higher multiple than the group.”
The bank hiked its price target for Spirax to 11,400p from 10,500p.
