Spirax-Sarco Engineering Plc

Spirax-Sarco Engineering Plc (SPX) is a British multi-national industrial engineering group. The group has a global reach with 131 operating units across 47 countries and is serving customers in over 110 countries. The company operations are focussed on electrical thermal energy solutions, niche pumping, control and management of steam and associated fluid path technologies.

Trading Update
On 13th November 2019, Spirax-Sarco Engineering announced trading for 4 months ending 31 October 2019. The latest Global Industrial Production growth forecast for 2019 was down by 1 per cent and 1.6 per cent at the time of the half-yearly announcement, which shows subdued global macro-economic environment. As per economic forecasters, Global Industrial Production will improve in 2020 to 1.7 per cent. The company continue to perform well in IP growth but as expected organic sales growth rate declined for the period. Watson-Marlow Fluid Technology continues to perform well for the period. On CER (constant exchange rate) operating profit remained ahead on an organic basis and including acquisition and disposal. The company maintained a strong balance sheet with a high cash generation.

Financial Highlights - H1 Financial Year 2019 (30^th June 2019, £, million)

(Source: Interim Reports, Company Website)
 
In the first half of the financial year 2019, the company’sreported revenue increased by 8 per cent to £591.2 million as compared to £547.6 million for the same period of last year, while adjusted organic revenue increased by 8 per cent. The company’s reported adjusted operating profit stood at £129.2 million for H1 FY19, an increase of 3 per cent against the £125.7 million in H1 FY18, while organic adjusted operating profit increased by 4 per cent. The reported operating profit was negatively impacted by a net £1.1 million from disposals and acquisition, and a £0.8 million exchange headwind. The reported adjusted profit before tax for H1 FY2019 stood at £124.6 million, an increase of 3 per cent against the £120.6 million in H1 FY18., while statutory profit before taxation increased to £108.1 million. The adjusted basic earnings per share rose by 1 per cent 120 pence for H1 FY19 as compared to 119.2 pence for H1 FY18. Statutory basic earnings per share stood at 102.4 pence, a decrease of 3 per cent against the 105.1 pence in H1 FY18. The cash conversion declined to 71 per cent as compared with the same period in 2018.
 
Share Price Performance
 
Daily Chart as at 14^th November 2019, before the market closed (Source: Thomson Reuters)

On November 14^th, 2019, Spirax-Sarco Engineering Plc shares were trading at GBX 8,385 at the time of writing before the market close (at 12:42 PM GMT), down by 0.12 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 9,445.00/GBX 5,875.00

Valuation Methodology

*Peers: Renishaw Plc, Halma Plc, Rotork Plc and Avon Rubber Plc.

Conclusion
The company’s financial performance was impacted by the negative effect of exchange rate movement in the current period. The company had shown decent top-line and bottom-line performance in the current period. The company is facing fierce competition from its competitors and is impacted by economic and political instability. As the company is having its operations in multiple countries, its performance is impacted by any breach created by legal and regulatory requirements. However, global industrial production growth rates remain uncertain, though the company serves a wide range of industries and have a great diversity of end markets. This will help it to cushion fluctuations in seasonal and cyclical demand.

The prospect for the adjusted operating profit margin will be in line with that outlined in the full-year results 2019 statement in March where the company expected that the adjusted operating profit margin in FY19 would be almost the same as against the FY18 period.

Based on the headwinds faced by the company, we have given a “WATCH" recommendation at the current price of GBX 8,405 (as on 14^th November 2019, before the market close at 8:05 AM GMT), while we look for any upcoming catalysts.

OneSavings Bank Plc

OneSavings Bank Plc (OSB) is a financial services company regulated by the Prudential Regulation Authority and Financial Conduct Authority. The group provides retail savings and lending services to its clients.

Trading Update
On 13th November 2019, OneSavings Bank announced a trading update.  On 4th October 2019, all share combination between CCFS (Charter Court Financial Services Group plc) and OSB were completed.

For nine months, the OSB’s Loan book growth was at 15 per cent, and net loans and advances increased to £10.3 billion during the period. In Q3 FY2019, the company’s New originationswere £842million versus £730million in Q3 FY2018 and for 9 months New originations stood at £2.5billion.

For nine months, the CCFS Loan book growth was at 4 per cent, and net loans and advances increased to £6.9 billion during the period. In Q3 FY2019, the company’s New originationswere £865million versus £708million in Q3 FY2018 and for 9 months New originations stood at £2.4billion.

Financial Highlights – H1 Financial Year 2019 (30th June 2019, £, million)

(Source: Interim Report, Company Website)

In the first half of the financial year 2019, the company’s net interest income was at £151 million versus £135.2 million in H1 FY2018. The company’s total income stood at £143.8 million in H1 FY2019 versus £133.1 million in H1 FY2018. The Underlying PBT (profit before tax) surged by 6 per cent to £96.9 million in H1 FY2019 from £91.8 million in H1 FY2018, while reported PBT remained flat at £91.0 million. The company’s reported PAT (profit after tax) was at £65.8 million in H1 FY2019 as against £69.5 million in H1 FY2018. The company’s basic earnings per share were at 25.5 pence in H1 FY2019 versus 27.5 pence in H1 FY2018. The Interim dividend in H1 FY2019 increased by 14 per cent to 4.9 pence from 4.3 pence in H1 FY2018.

Share Price Performance

Daily Chart as at 14^th November 2019, before the market closed (Source: Thomson Reuters)

On November 14^th, 2019, OneSavings Bank Plc shares were trading at GBX 364.2 at the time of writing before the market close (at 2:16 PM GMT), up by 0.99 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 458.80/GBX 312.80.

Valuation Methodology

*Peers: Paragon Banking Group Plc, Royal Bank of Scotland Group Plc, Lloyds Banking Group Plc and Virgin Money UK Plc.

Conclusion
The company had shown a decline in the financial performance in the first half of the financial year 2019. Although the top-line performance has improved, the bottom-line performance declined for the current period. The company had not been able to control its operating and non-operating expenses effectively, due to which profitability declined. The company’s operations can be affected negatively due to ongoing uncertainties created over the Brexit. The company has achieved decent growth from its core market segments.

Based on the above rationale and valuation, we recommend investors to keep a "Watch" on the stock at the current price of GBX 372.60 (as on 14^th November 2019, before the market close at 9:05 AM GMT), with support from few catalysts needs to be evaluated at a later stage.
 
*All forecasted data and peer information have been taken from Thomson Reuters.

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