The FTSE 100’s Spirax-Sarco share price soars as it expects to beat guidance!

The Spirax-Sarco Engineering share price has rocketed in midweek business. Here’s why the FTSE 100 firm is shooting higher again.

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UK share prices are back on the front foot on Wednesday following recent meaty losses. The FTSE 100 is stepping back towards the critical 7,000 marker as modest dip-buying emerges. And Spirax-Sarco Engineering (LSE: SPX) is currently the index’s biggest riser in midweek trading.

At £119.50 per share, the steam system and pump manufacturer was last trading 3% higher on the day.

Growing ahead of the market

Spirax-Sarco has bounced back on Wednesday thanks to a positive reception to fresh trading details.

At its AGM the FTSE 100 firm said organic sales growth in the four months to April “was ahead” of growth in the broader global industrial production (IP) market. It noted that the IP marketplace rose 7.4% in the first four months of 2021. This was also ahead of the 6.1% increase for January-April it had predicted in March.

Its Watson-Marlow unit “continued to experience exceptional Covid-19 vaccine-related demand from its customers in the Pharmaceutical & Biotechnology sector”. Sales at this particular division account for just over a quarter of the group total.

Elsewhere, organic sales growth across Spirax-Sarco’s Steam Specialties, Electric Thermal Solutions and Watson-Marlow’s Process Industries sectors also outperformed expansion in the broader global IP market.

Markets recover faster than expected

Speaking more broadly, Spirax-Sarco said “the world is recovering faster than previously anticipated from the adverse economic effects of the Covid-19 pandemic, supported by sizeable fiscal stimulus packages”. As a consequence, it thinks the IP sector will grow 8.5% in 2021. This is upgraded from the 7% improvement the company predicted two months ago.

However, the FTSE 100 business cautioned that forecasts could be subject to further revisions. This is due to “the difficulties faced by many emerging economies in implementing their vaccination plans and the continued uncertainty surrounding the ability to resume normal international trading activities,” it said.

Spirax-Sarco hikes guidance

For the moment, it thinks Watson-Marlow’s organic sales to the Pharmaceutical & Biotechnology sector “will be over 55% in 2021 due to continuing strong COVID-19 related demand.” sales to these customers accounted for 55% of all Watson-Marlow revenues in 2020.

The company also predicted that its other revenue streams will deliver organic sales growth in 2021 above the increased forecast for global IP growth. And it said its Electric Thermal Solutions unit “ended 2020 with a higher than-normal order book”. This is expected to add at least a further £8m to sales in 2021.

Finally Spirax-Sarco said that it is “accelerating capacity expansion initiatives in Watson-Marlow and we continue to step-up our revenue investments”. These increased expenditures are weighted towards the second half of 2021. When taken together with higher sales growth and the impact of operational gearing, it expects the annual drop-through from the organic increase in sales to operating profit to be close to 35%. This is also above its previous guidance.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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