MIDAS SHARE TIPS: Scorching return… steam tech pioneer Spirax Group is a sizzling tip

The Central Hospital of Wuhan was unusually busy in April 2020. The first place to diagnose Covid-19 four months earlier, Wuhan’s main health centre was overflowing with desperately ill patients and overworked staff.

That was when the steam system stopped working so there was no heating, no hot water and little possibility of properly treating the sick. A brave engineer, kitted out in protective gear from head to toe, entered the compound and fixed the problem.

That man worked for Spirax, a Cheltenham-based business that has become the world leader in steam products, technology and know-how. Steam is used in almost every industrial process there is, from complex chemical manufacturing to jam-making.

Simple to produce and highly efficient, steam heats buildings and products, cleans and sterilises equipment, cooks food, produces hot water, humidifies spaces and boasts a host of other applications besides. Spirax equipment ensures that steam fulfils its potential, hitting the right spots at the right time, the right temperature and just the right pressure.

Customers range from multinationals such as Diageo, Mars and Nestle, to brewers and carmakers to hospitals, water firms, oil majors and miners. The group works with more than 100,000 businesses, operating in 160 countries round the world.

Many firms have worked with Spirax for years, not just because its equipment is high quality but also because the group offers specialised advice from 2,100 experienced engineers who engage directly with factory managers to find out what they need and how best to provide it.

Cash flow: Spirax shares look set to rise as demand grows for its technology harnessing steam

Founded in 1888, Spirax specialised in steam from the start. Subsequently, though, it has expanded into electric heating and fluid technology. The fluid business is all about pumps, tubes, connectors and other components that help liquids to move from one place to another, often in sterile environments, where safety is paramount.

Customers operate in sectors from beer to biotech. Drug firms account for around half the sales in this business, and many products are single use, deployed in cutting-edge processes such as cell and gene therapy. The third element of the Spirax group centres on the provision of electric heating systems and boilers. Steam can be used to temperatures of up to 360C. Some areas of industry need a lot more. Part of the process behind semi-conductor fabrication, for example, requires temperatures of 450C for hours at a time with absolutely no variation. Spirax provides the element that makes that happen and the group is working on new products capable of delivering temperatures in excess of 700C.

Electrification can have a dramatic impact on customers’ carbon footprint. Today, around a fifth of global carbon emissions come from heat used in industry – more than all the cars, planes, trains and trucks in the world combined. Electric systems can make a dramatic difference, particularly when they are powered with renewable energy, such as wind or solar. Spirax chief executive Nimesh Patel is on a decarbonisation mission, encouraging steam customers to switch from oil and gas-fired systems to their electric equivalents and finding new firms that are attracted to this type of technology.

The group is a pioneer in this field and Patel believes it can generate billions of pounds in revenue over the next decade and beyond.

Recent times have been tough for Spirax. The group’s fluid technology business helped make Covid vaccines so revenues leapt as the world was injected. Businesses also restocked with vigour after the pandemic, sending sales and profits soaring in 2021 and 2022. Last year, however, conditions changed, as interest rates rose, economic growth faltered and many companies held back on new orders. Spirax profits fell in 2023 and first-half results came in below expectations.

Now, however, the company seems on the cusp of recovery. A recent trading update pointed to steady sales and profits this year, reassuring brokers who feared that tough conditions might take their toll.

Next year, sales are expected to rise by around 6 per cent to £1.8 billion, approaching £1.9 billion by 2026. Profits are forecast to climb more than 11 per cent to £321 million in 2025, exceeding £360 million the following year.

Spirax has an enviable dividend record too – 56 years of consistent growth, with more expected from here on in, £1.64 for 2024 and more than £1.70 for 2025.

Midas verdict: Spirax has a long history of untrammelled growth and its share price reflected that record. Recent disappointment has sent the stock spiralling down from £161 to £71. They should rise from here, making this a good time to buy. 

Traded on: Aim Ticker: SPX Contact: spiraxgroup.com