March 5, 2018 by tradersnote
Spirax-Sarco Engineering plc is an engineering company based in the UK. The firm is listed on the London Stock Exchange.
Spriax-Sarco is one of the UK’s largest and most profitable engineering companies. However, the firm’s name is almost certainly not one that may spring to a British investor’s mind when they think of the best performing UK shares – although, the company’s significant overseas operations and membership of the FTSE 250 Index certainly mark it out as a share to watch. Perhaps this is because generally received wisdom dictates that the UK is an almost entirely services-driven economy, with very little in the way of manufacturing and technological innovation on offer.
This perspective is certainly wrongheaded – and is not shared by overseas investors, who still view the UK as a key hub in the global economy for the creation of cutting-edge engineering solutions, and consider Spirax-Sarco a key driver within the industry. Greater international awareness of the role of the business is in itself a testament to the company’s international character – and it is this aspect of Spirax-Sarco that will be particularly attractive to potential investors. For, while manufacturing and heavy industry barely exist in the UK in the 21st century, it thrives and expands in many other parts of the world – both in established Western economies in Europe and North America, and developing regions in Asia and Latin America.
As of 2014, an ever-increasingly significant proportion of the firm’s profits are derived from emerging markets – and Spirax-Sarco has also indicated that it intends to fully penetrate India and China by 2020. If successful, this will expose the company to two of the world’s largest – and most lucrative – emerging markets, holding the firm in good stead for the future.
A key failing of Spirax-Sarco shares, however, is that the company has demonstrated a willingness to accumulate high debts. Such a shortcoming is not necessarily grounds for avoiding the share altogether, but could certainly serve as a significant disincentive. The company is arguably often in the invidious position of either having to let debts pile up, or pay them and cut both investment and dividends – two key ‘selling points’ (so to speak) of the share of many. Such a weakness also leaves the company at the mercy of creditors in the event of a shock to the world economy, such as the financial crisis of 2008/9.
On the other hand, Spirax-Sarco shares are arguably undervalued. Again, this is potentially caused by the systematic overlooking of the sector as a whole by some investors looking after more obvious growth stocks. As a result, some investors could see Spirax-Sarco shares as a bargain – and one that will only grow in value over time. Ultimately, it depends on an individual investor’s constitution – get in ‘early’ while shares are at an initial growth phase, or ignore the longer-term prospects entirely in ffavorof shares that offer immediate returns and value surges? This is a question for them alone to answer.
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