- Profit seen missing forecasts
- Issues are company-specific
- Analysts set to cut estimates
Specialist engineering firm Spectris (SXS) confirmed the sceptics’ view of the company by lowering its full-year operating profit forecast to ‘at or below’ the bottom end of the consensus.
The shares slumped 450p or 14% at the open to a 12-month low of £27.50 before recovering to £29.50 for a loss of 8% in mid-morning trade.
PANALYTICAL PAINS
The main reason the firm gave for lowering guidance was revenue issues at the spectrometry business Malvern Panalytical.
The roll-out of a new ERP (enterprise resource planning) system across Malvern meant operations were disrupted, which is normal, but in this case the upheaval has lasted longer than expected.
As a result, around £15 million of sales and £10 million of operating profit which should have booked in the first half, which ends this month, are now expected to be booked in the second half, although there is no impact on the full year.
Additionally, however, Malvern has seen weaker demand in China, a ‘significant’ reduction in battery development due to the slowdown in EV (electric vehicle) sales and ‘subdued’ trading in pharmaceuticals.
All of which is set to reduce first-half sales by a further £15 million and operating profit by a further £10 million, meaning full-year operating profit will be at or marginally below the bottom end of analysts’ forecasts of £232 million to £259 million.
The firm stressed trading across its other businesses was in line with expectations, although that did little to help the share price.
EXPERT VIEW
Although the consensus view on Spectris is mildly positive, not all analysts are fans of the company, with many having a Sell recommendation, which is unusual.
Tom Fraine and Akhil Patel at Shore Capital have had a Sell recommendation on the shares since the end of February following confirmation of a weak order book, which in their view called into question management’s ‘through-the-cycle’ organic sales growth target.
Based on today’s update, the pair expect first-half operating profit to be within a range of £60 million to £64 million compared with market forecasts of £80 million to £84 million, while full-year profit is likely to be downgraded to around £230 million, a touch below the low end of the current range of estimates.
