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Kone - Expanding Multiples

Analysing companies' finances and value from their financial statements using ratios and formulae
flyer61
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Re: Kone - Expanding Multiples

#420095

Postby flyer61 » June 17th, 2021, 9:03 am

Quite Mark! I sold my Halma holding yesterday and put it into Brunner. Tripled my dividend and am buying Visa, Microsoft, Estee Lauder at a 10% discount......go figure!

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Re: Kone - Expanding Multiples

#420535

Postby TheMotorcycleBoy » June 18th, 2021, 4:13 pm

ADrunkenMarcus wrote:I know I keep banging on about it, but Spirax Sarco has just hit 13465p a share. Even on a TWO-year forward basis and a forecast of 356p earnings per share for 2023, this represents a p/e of about 38. The forecast dividend represents 1.1 percent as a yield on today's price. You get to the point where you wonder what 'Mr. Market' knows that you don't!

Best wishes


Mark.

I see there's the odd mention of the phrases 35% and 55% in rather close proximity to the words "organic" "sales" and "growth", in

https://www.investegate.co.uk/spirax-sa ... 00032933Y/

I'm guessing that's the clue! :lol:

I'm wondering how much is coincident with steam usage for cleaning vaccine factories, or biotech related industries. (Hence perhaps the growth is only short term is related to vaccine production surge).

BTW Mark, where did you get the forecast EPS of 356p - is it your own workings out?

thanks Matt

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Re: Kone - Expanding Multiples

#421195

Postby ADrunkenMarcus » June 21st, 2021, 4:44 pm

TheMotorcycleBoy wrote:BTW Mark, where did you get the forecast EPS of 356p - is it your own workings out?


I subscribe to Sharepad. It has forecasts out to 2023.

Best wishes


Mark.

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Re: Kone - Expanding Multiples

#421197

Postby ADrunkenMarcus » June 21st, 2021, 4:47 pm

flyer61 wrote:Quite Mark! I sold my Halma holding yesterday and put it into Brunner. Tripled my dividend and am buying Visa, Microsoft, Estee Lauder at a 10% discount......go figure!


A ten percent discount is always good. Best of luck with it!

Best wishes


Mark

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Re: Kone - Expanding Multiples

#426978

Postby ADrunkenMarcus » July 12th, 2021, 11:51 am

ADrunkenMarcus wrote:I know I keep banging on about it, but Spirax Sarco has just hit 13465p a share. Even on a TWO-year forward basis and a forecast of 356p earnings per share for 2023, this represents a p/e of about 38. The forecast dividend represents 1.1 percent as a yield on today's price. You get to the point where you wonder what 'Mr. Market' knows that you don't!


I need to update this! Let's make some changes in bold:

"I know I keep banging on about it, but Spirax Sarco has just hit 14150p a share. Even on a TWO-year forward basis and a forecast of 358p earnings per share for 2023, this represents a p/e of about 39.5. The forecast dividend represents 1 percent as a yield on today's price. You get to the point where you wonder what 'Mr. Market' knows that you don't!"

Kone doesn't look too bad, though - the valuation has come down somewhat.

Best wishes



Mark.

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Re: Kone - Expanding Multiples

#426990

Postby TheMotorcycleBoy » July 12th, 2021, 11:59 am

ADrunkenMarcus wrote:
ADrunkenMarcus wrote:I know I keep banging on about it, but Spirax Sarco has just hit 13465p a share. Even on a TWO-year forward basis and a forecast of 356p earnings per share for 2023, this represents a p/e of about 38. The forecast dividend represents 1.1 percent as a yield on today's price. You get to the point where you wonder what 'Mr. Market' knows that you don't!


I need to update this! Let's make some changes in bold:

"I know I keep banging on about it, but Spirax Sarco has just hit 14150p a share. Even on a TWO-year forward basis and a forecast of 358p earnings per share for 2023, this represents a p/e of about 39.5. The forecast dividend represents 1 percent as a yield on today's price. You get to the point where you wonder what 'Mr. Market' knows that you don't!"

Kone doesn't look too bad, though - the valuation has come down somewhat.

Best wishes



Mark.

Hi Mark,

Alas I've not had time to put the slide rule on SPX for a bit. So with the forecast of 358p EPS (FC 2023), what does that give us as an estimated annualised earnings growth rate?

BTW I have to say, that I'm certainly considering topping them at up the near future....

Matt

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Re: Kone - Expanding Multiples

#427141

Postby ADrunkenMarcus » July 12th, 2021, 6:30 pm

TheMotorcycleBoy wrote:Alas I've not had time to put the slide rule on SPX for a bit. So with the forecast of 358p EPS (FC 2023), what does that give us as an estimated annualised earnings growth rate?

BTW I have to say, that I'm certainly considering topping them at up the near future....


Earnings are forecast at 316p in 2021 (up 24%); 336p in 2022 (up 6%) and 358p in 2023 (up 7%). Not bad at all but if earnings grew at 8% from 2023 to 2030 then we'd have 614p by then: assuming a 30 p/e multiple then it might be 18420p a share in 2030 which is 'only' up 30% on today. I'm hoping earnings are better than forecast and Spirax has done better than 8% earnings growth historically, as well as delivering 11% CAGR in dividends over five decades (and growing).

I bought in 2015 in my pension and my dividend growth portfolio, then topped up in the latter in 2018 at what I thought was the steep price of 5800p! Spirax is now 14% of the former and 9.8% of the latter. Happy to hold but not adding.

Best wishes


Mark.

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Re: Kone - Expanding Multiples

#427207

Postby ADrunkenMarcus » July 12th, 2021, 10:21 pm

It turns out Spirax was featured in the Daily Telegraph's Questor column a few days ago as an example of a company with pricing power. Perhaps this helps explain some of the recent strength.

They included quotes from Richard Hallett, manager of Marlborough Multi Cap Growth.

“Spirax-Sarco is a world-class engineer,” said Richard Hallett, who runs the Marlborough Multi-Cap Growth fund. “It’s a class act. Why is it different? It has 60 years’ experience and can deal directly with its industrial customers thanks to its 1,900* or so specialist engineers around the world. No rival can offer this – other firms tend to use distributors.

“Spirax-Sarco’s direct relationships allow it to offer much better availability of parts as well as consultancy services. Its products are more expensive but that combination gives it real pricing power. It helps that the value of its goods and services is small compared with the sums tied up in its customers’ plant. Hence it has a record of being able to nudge up prices year after year.”
...[snip]...
“It has 30 years of continuous growth, well spread around the world, behind it. It’s always reinvesting, but it produces plenty of free cash too,” Hallett said. “When you talk to management it is all about the long term, protecting its culture, looking after its customers, investing in intellectual property


Best wishes


Mark.

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Re: Kone - Expanding Multiples

#427627

Postby TheMotorcycleBoy » July 14th, 2021, 1:31 pm

ADrunkenMarcus wrote:
TheMotorcycleBoy wrote:Alas I've not had time to put the slide rule on SPX for a bit. So with the forecast of 358p EPS (FC 2023), what does that give us as an estimated annualised earnings growth rate?

BTW I have to say, that I'm certainly considering topping them at up the near future....


Earnings are forecast at 316p in 2021 (up 24%); 336p in 2022 (up 6%) and 358p in 2023 (up 7%). Not bad at all but if earnings grew at 8% from 2023 to 2030 then we'd have 614p by then: assuming a 30 p/e multiple then it might be 18420p a share in 2030 which is 'only' up 30% on today. I'm hoping earnings are better than forecast and Spirax has done better than 8% earnings growth historically, as well as delivering 11% CAGR in dividends over five decades (and growing).

I bought in 2015 in my pension and my dividend growth portfolio, then topped up in the latter in 2018 at what I thought was the steep price of 5800p! Spirax is now 14% of the former and 9.8% of the latter. Happy to hold but not adding.

Best wishes


Mark.

I've bought at about 6130p, and 5978p in late 2018, and 7692p in april 2020. I may consider topping up if the SP comes down to between 11000-12100p.

It's about 3.3% of our portfolio.

Matt

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Re: Kone - Expanding Multiples

#430104

Postby ADrunkenMarcus » July 24th, 2021, 12:12 pm

The financial times led a recent story, 'Specialist UK engineers find sweet spot as pandemic boosts valuations', with Spirax Sarco. They also mentioned Halma, Renishaw and Spectris.

Their argument was that 'quality' or niche engineers are now enjoying a substantially greater valuation premium over more general engineering groups like IMI, Smiths or Weir. There are Swiss, Japanese and American companies in the same position. 'One industrial banker' suggested there's now a 'quality premium' of 50 percent over 'average' industrial engineering companies instead of the 10-20 percent seen historically. Julian Fosh from Liontrust, which has long been a fan of Spirax, extolled the virtues of quality.

There was some discussion about valuations, balanced with the expectation of profitability upgrades. Then Halma's CEO was quoted as saying Halma has a 20-year mindset for acquiring businesses and then maturing them into global companies over decades.

Rotork was included in the article but in the context of suffering from an ESG perspective, given its reliance on oil and gas (which management are aware of and are seeking to move away from). Nonetheless, I bought much of my holding in 2016 at a 3.4 percent dividend yield and have enjoyed good returns.

They also mentioned China is trying to develop 10,000 'little giants' in niche manufacturing sectors. Let's hope the moats hold up! I am more worried about long term competitive strength than short term valuation.

Best wishes


Mark.

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Re: Kone - Expanding Multiples

#430157

Postby TheMotorcycleBoy » July 24th, 2021, 6:01 pm

ADrunkenMarcus wrote:They also mentioned China is trying to develop 10,000 'little giants' in niche manufacturing sectors. Let's hope the moats hold up! I am more worried about long term competitive strength than short term valuation.

I can't believe why exactly SPX has such a good moat, TBH. All l really know of their business is that it involves Thermal/Steam engineering. I don't understand why this, obviously, has such a high barrier to entry.

It's certainly something I'd like to learn more about; something that isn't covered at all in their ARs. Presumably because it is CCI.

Matt

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Re: Kone - Expanding Multiples

#431032

Postby ADrunkenMarcus » July 28th, 2021, 7:25 pm

There are some comments in their annual report, however the main concern for me is that there IS a moat.

Spirax touched 15095p today! It's up 362% since purchase in 2015 or about 29% p.a. excluding dividends. If I simply include the dividends I took as cash and add them on to the share price, then the total return is around 386% - almost a quintuple bagger in six years. :D

As a consequence of this p/e inflation, it now makes up 10.6% of my dividend growth portfolio and 14.1% of my SIPP (slightly more when you consider Smithson holds it and 47% of my SIPP is in Smithson!)

Best wishes

Mark.

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Re: Kone - Expanding Multiples

#434401

Postby ADrunkenMarcus » August 12th, 2021, 5:34 pm

Do journalists not research properly? From CityWire:

Engineer Spirax-Sarco (SPX) has reinstated its dividend and improved its full-year outlook, with Shore Capital believing it has attractive long-term growth prospects.
Analyst Tom Fraine retained his ‘hold’ recommendation on the stock, which was up 4.2%, or 640p, at £155.77 after a strong set of first half results.
‘In the long-term, we believe Spirax can continue gaining market share and grow ahead of the wider sector,’ he said. ‘We previously suggested that its share of the fragmented steam specialities and electric thermal solutions markets could still be as low as 30% by 2030, even with the current rate of market share gains continuing, leaving plenty of room for future growth beyond a 10-year horizon.’
Fraine said despite the current valuation ‘we see scope for further material upgrades to consensus forecasts in the short term’.


They referred to Spirax reinstating its dividend. It NEVER eliminated, cut or even froze the dividend: to the contrary, it has been paid like clockwork. Last year's dividend showed a healthy high single digit increase and the interim for this year was increased 15%.

Best wishes


Mark.

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Re: Kone - Expanding Multiples

#434407

Postby monabri » August 12th, 2021, 5:55 pm

ADrunkenMarcus wrote:Do journalists not research properly? From CityWire:

Engineer Spirax-Sarco (SPX) has reinstated its dividend and improved its full-year outlook, with Shore Capital believing it has attractive long-term growth prospects.
Analyst Tom Fraine retained his ‘hold’ recommendation on the stock, which was up 4.2%, or 640p, at £155.77 after a strong set of first half results.
‘In the long-term, we believe Spirax can continue gaining market share and grow ahead of the wider sector,’ he said. ‘We previously suggested that its share of the fragmented steam specialities and electric thermal solutions markets could still be as low as 30% by 2030, even with the current rate of market share gains continuing, leaving plenty of room for future growth beyond a 10-year horizon.’
Fraine said despite the current valuation ‘we see scope for further material upgrades to consensus forecasts in the short term’.


They referred to Spirax reinstating its dividend. It NEVER eliminated, cut or even froze the dividend: to the contrary, it has been paid like clockwork. Last year's dividend showed a healthy high single digit increase and the interim for this year was increased 15%.

Best wishes


Mark.


Well, it would take a full 15 seconds to verify... :roll:

https://www.dividenddata.co.uk/dividend ... y?epic=SPX

In the Telegraph this morning, the journalist was bleating about the massive fall in Rio Tinto's price today

" Rio Tinto shares slumped heavily as they traded without entitlement to a pretty generous dividend."

Well....yeah, when a company doles out £6.6 billion in a single dividend one might expect a FTSE100 companies share price to move!

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Re: Kone - Expanding Multiples

#434438

Postby ADrunkenMarcus » August 12th, 2021, 8:03 pm

Isn't it beautiful?

Compound Annual Growth Rate:
11.7% over 5 years;
10.6% over 10 years;
11.4% over 15 years

And the interim dividend (paid November) now 20% above pre-COVID levels. The lowest rate of annual increase since my purchase is 7%.

Sounds like they didn't understand 'ex-dividend' in the contact of Rio, either!

Best wishes


Mark.

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Re: Kone - Expanding Multiples

#434984

Postby ADrunkenMarcus » August 15th, 2021, 9:25 pm

Spirax Sarco(a manufacturer of products for the control and efficient use of steam and other industrial fluids) recently implemented solutions at a Nestle factory that reduced energy use by 45%, emissions by 43%, and water use by 48%.


This being the case, with current reporting on the need to conserve energy; decarbonise; and make economical use of resources, Spirax's services may be in increasing demand in the 2020s and beyond...

Best wishes


Mark.

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Re: Kone - Expanding Multiples

#441734

Postby ADrunkenMarcus » September 12th, 2021, 9:59 pm

How 'cheap' Spirax was back in June!

It hit 16700p at its recent peak. Fortunately there has been an upward revision of forecasts so it's not all p/e expansion - assuming those forecasts pan out. :lol:

Best wishes


Mark.

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Re: Kone - Expanding Multiples

#444781

Postby TheMotorcycleBoy » September 23rd, 2021, 5:01 pm

ADrunkenMarcus wrote:How 'cheap' Spirax was back in June!

It hit 16700p at its recent peak. Fortunately there has been an upward revision of forecasts so it's not all p/e expansion - assuming those forecasts pan out. :lol:

Best wishes


Mark.

Personally I think the market's euphoria is ill-formed. I think people are only looking at how FCF has grown in the past 12 months. I've just updated my spreadsheet for AR2020. When you compare the AR2018 to AR2020s figures you see

FCF growth 13% (pretty good)
Net CFO growth 12% (pretty good)
Sales 1.7% (hmm...)
EBITDA, EBIT, Earnings are down :(



Matt

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Re: Kone - Expanding Multiples

#444812

Postby monabri » September 23rd, 2021, 6:53 pm

Would you not need to show the Cap-Ex info along with the FCF info? It could be that the FCF figure is being flattered by a reduction in Cap-Ex.
(I assume the number of ordinary shares is a constant).

(just a passing thought).

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Re: Kone - Expanding Multiples

#444815

Postby ADrunkenMarcus » September 23rd, 2021, 7:04 pm

TheMotorcycleBoy wrote:EBITDA, EBIT, Earnings are down :(


They are, but they're forecast to go up. I do agree that 2022 and 2023 forecasts are not deserving of the high p/e, though.

monabri wrote:Would you not need to show the Cap-Ex info along with the FCF info? It could be that the FCF figure is being flattered by a reduction in Cap-Ex. (I assume the number of ordinary shares is a constant).


Capital expenditure increased from about £38 million in 2017 to about £50 million in 2020 and is forecast to rise to about £73 million in 2021. (It did hit £62 million in 2019, though.)

Best wishes


Mark.


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