Spirax Group (LSE: SPX) has never been a headline grabber, but this overlooked UK income share is in the spotlight today.
The FTSE 100 stock has climbed 21% since the start of the year, making it the third-best performer on the blue-chip index. Given its recent volatility the rally is a welcome surprise.
The Spirax share price still has some way to go. Over 12 months it’s down 18%, while over three years it has slumped 35%. So why the sudden jump?
A key reason seems to be fresh optimism around Chinese stimulus efforts. Spirax specialises in niche industrial and commercial steam systems, and China is a crucial market. With signs that Beijing could ramp up support for its economy, investors may be betting on a recovery in demand for Spirax’s products.
Personally, I’m a little sceptical. One Chinese stimulus package after another has fallen short. Although this week’s DeepSeek shock shows we shouldn’t underestimate the country’s prospects.
The shares finally leap
Another major catalyst came from broker Jefferies, which upgraded its rating on Spirax to a Buy on 20 January.
This formed part of its annual review of the UK industrials sector, where it downgraded Smiths Group and XP Power, among others.
Jefferies said a much-anticipated sector recovery failed to materialise last year and 2025 doesn’t look much brighter, amid “limited positive momentum and plenty of uncertainty”. But it was more upbeat about Spirax, claiming it had now “been through the worst and can recover nicely over the next two to three years”.
That helped spark the January rally but Jefferies still didn’t include Spirax in its top picks. That probably put a lid on the rally too.
I wrote on 10 January that Spirax had completely flown under my radar. The global industrials slowdown had taken its toll, with falling Chinese demand hitting its Steam Thermal Solutions division.
Yet analysts were upbeat even then. The 17 brokers offering one-year forecasts produced a median target of 7,825p, up 18% from the then-price of 6,630p.
A true FTSE 100 dividend star
I was tempted but thought Spirax looked expensive with a price-to-earnings ratio of more than 21 times earnings. It’s pricier today, with January’s rally pushing its P/E beyond 26 times.
Where Spirax really scores is on income. This is a blue-blood Dividend Aristocrat, with 55 years of consecutive annual increases.
However, the yield has slipped after the recent price surge, dropping to just 1.95%. That’s surprisingly low, given recent share price struggles. I guess we can rely on it to grow steadily, although there are no guarantees, even with Spirax.
It should fare better in 2025 as its more profitable end markets recover, but I still think better value exists for me elsewhere on the FTSE 100. Debt of £1bn is a little hefty given its £6bn market cap.
It’s good to see Spirax build up a bit of steam but it doesn’t change my stance. At today’s valuation, I’m staying on the sidelines.
This post was originally published on Motley Fool
