1st Stock pitch of the Industrials team

1. SPIRAX-SARCO
ENGINEERING PLC
Lancaster University | Ghosal Investment Fund
Industrials
Sector
Cameron Massey
Issa Nimaga
Jacopo Zipoli
Jakub Szymkowiak
Jonathan Allison
Sebastião Sousa Guedes

2. Agenda
1
2
3
4
5
Business Description
Industry Analysis
Competitive Position and Key Ratios
Technical Analysis
Valuation

3. Business Description
1. Spirax-Sacro Engineering Group
2. Recent TimeLine
3. Corporate Governance
4. Business Strategy
5. ESG Questionnare

4. Stock Price
£88
Beta
0.93
Market Cap
£6.515B
Revenue
£1.2B
EV/EBITDA
13.49
Key Financial Figures
Source: Thomson Reuters

5. Industrial and
commercial steam
systems
Electrical process
heating and temperature
management solutions
Niche peristaltic pumps
and associated fluid path
technologies
Spirax-Sarco Engineering Group

6. 20192015 2016 2017 2018
Acquisitions of
MasoSine in Japan,
Flow Smart Inc. and
Asepco
Acquisition of Aflex
Hose Ltd. and Hiter.
Acquisition of Chromalox
and Gestra
Disposal of HygroMatik,
Became a constituent of
FTSE100
Acquisition of Thermocoax
Recent TimeLine

7. In 2018, the following changes in the board of directors have occured:
• Bill Whiteley, Chairman and Director, has retired
• Jamie Pike, Senior Independent Director since 2014, has taken over the
Chair position
• Peter France joined the Board, after being a CEO at Rotork
• Caroline Johnstone, former partner at PricewaterhouseCoopers, joined the
Board
Current CEO is Nicholas Anderson, who joined the group in 2011 and was
appointed to his current position in 2014
Personal Strategic Objectives for year 2018:
• Health, Safety & Sustainability performance of the Group,
• Gestra and Chromalox integration
• Implement a new enhanced organisational structure by Q3 2018
Corporate Governance

8. Increase direct
sales effectiveness
through market
sector focus
Develop the
knowledge and
skills of the expert
sales and service
teams
Broaden the global
presence
Leverage R&D
investments
Optimise supply
chain effectiveness
Operate
sustainably and
help improve
customers’
sustainability
Business Strategy

9. STRENGHTS WEAKNESSES
• Successful implementation of newly acquired
businessess
• Geographical expansion to new countries
• Watson-Marlow's growth slows
• Cyclical rally
OPPORTUNITIES THREATS
• Minimising own environmental impacts
• Core product range extensions, meeting a wider
range of customer needs
• Economic and political instability
• Significant exchange rate movements
SWOT Analysis

10. ESG Questionnaire
Health and Safety
Increase of the H&S training units –
87,671
Gender equality
Target of 33% of women in Board –
30% currently.
Ranked 2nd in the 2018 FTSE
Women Leaders Review in the
engineering sector
Governance
Whistle-blowing helpline has been in
use since 2014.
The Board confirmed an intention to
appoint 3rd internal auditor in 2019
Cybersecurity and GDPR
GDPR compliance plans were
completed before May 2018.
Employees were trained about the
cybersecurity, new encryption and
anti-virus has been added
Environment
In 2018, further reduction of
emissions intensity by 5%, giving a
24% reduction in emissions
intensity since 2013
FTSE4Good constituent Sustainability
Spirax Sarco energy management
products sold during 2018 will reduce
our end users’ CO2 emissions by
5.7 million tonnes annually

11. Industry Analysis
1. Sector Description
2. Sector Sensitivity
3. Macro Environment & Economic

12. Sector Description
The Three Standard Groups within Industrials
These are products or assets
that are not sold to
consumers but are instead
used to produce other goods.
Capital Goods
Includes companies that
provide both commercial &
passenger transportation,
freight and carrier services.
Transportation
These companies can be
considered business to business
(B2B) as they provide services to
other companies.
Commercial &
Professional Services

13. Spirax-Sarco
Engineering PLC
Industry breakdown
The firm operates/falls under the two standard
subgroups;
• Capital Goods (Construction and Engineering)
• Commercial & professional services.
85%
15%

14. Highly
sensitive
to overall
economic
conditions
- Industrial Select Sector SPDR Fund (XLI)
- S&P 500
beta(β) = 1.3
Sector Sensitivity

15. Sector Sensitivity
High correlation is mainly due to a
huge proportion of the Capital goods
and Transportation sub-group
Why?
Capital Goods $2909.74 B
Aerospace & Defense $863.51B
Construction & Engineering $75.62B
Machinery $799.90B
Electrical Equipment $280.77B
Industrial Conglomerates $560.63B
Building Products $134.18B
Trading Companies & Distributors $195.13B
Transportation $977.25 B
Air Freight & Logistics $204.64B
Airlines $213.80B
Transportation Infrastructure $19.30B
Road & Rail $524.58B
Marine $14.93B
Commercial & Professional Services $538.87 B
Commercial Services & Supplies $257.57B
Professional Services $281.30B

16. Macro environment & Economic Outlook
• Projections assume orderly exit from EU
GDP & Spending

17. Macro environment & Economic Outlook
Inflation rate

18. Competitive Position
and Key Ratios
1. What makes Spirax-Sarco a good business
2. Barries to entry
3. Main Competitors
4. Ratios Analysis

19. What makes Spirax-Sarco
a good business

20. Direct Sales Model
Over 70% of its annual revenues
More profitable than selling through
wholesale distributors
Customer needs
Solve their difficult productivity, process
challenges & operational sustainability
Regional manufacturing
Local availability of a wide range of
products is critical to this business
Customer closeness
Creates a unique understanding of
customers’ needs & long‐term
relationships
Wide product range
The breadth of the products is
unmatched by competitors
Applied engineering
It's not just the product that brings
value, it's all the service behind

21. • 61 operating units
• Direct sales in 62
countires
• No overweight on a
particular region
• Truly global exposure
Geographic Diversification

22. Non-cycle Markets
Why?
• 50% of Group revenue derived from defensive, less cyclical, end markets

23. 50%
35%
15%
85%
of Group revenue is generated
from annual maintenance and
operational budgets
Revenue Drivers
Maintenance and repair sales
Maintain existing systems, typical invoice of around £1k
Small project sales
Improve existing systems with a typical invoice of 10k‐£50k
Large project sales
Build new systems, with a typical invoice value of
over £100k

24. Barriers to entry
You can simply
impress your
audience and add
a unique zing.
Your Text Here
Global footprint InvestmentProduct & Service
• Largest range of
products maintaining
the inventory
• Ability to meet
customer needs
• Ability to spend on
R&D is higher than
competitors
• Investment required
to establish a similar
infrastructure would
be very significant
• Short lead times
• Operating units
that keep the
inventory
• Network of sales
engineers that
provide support to
the costumers

25. Main Competitors
Company
Country UK UK UK UK
Market Cap £6.515 B £1.659 B £3.079 B £7.408 B
Revenue £1.2 B £727M £1.9 B £2.9 B
Did Yield 1.16% 2.25% 3.70% 1.65%
P/E £29.38 £16.52 £17.84 £21.57
EPS £2.99 £0.524 £0.634 £2.04
ROE 32.47% 14.59% 26.79% 10.13%

26. Revenue and EBITDA Growth
Source: Company Reports
661.7
689.4 678.3 667.2
757.4
998.7
1153.3
136.2 151.6 153 152.4
180.6
235.5
264.9
0
200
400
600
800
1000
1200
1400
2012 2013 2014 2015 2016 2017 2018
Revenue EBITDA

27. Profitability Ratios
Industry Average
Spirax Sarco
EBITDA Margin %
Consistent EBITDA margins over the
years
13.7%
25.6%
Industry Average
Spirax Sarco
Gross Margin %
37.3%
75.9%
Source: Thomson Reuters (2018)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
2013 2014 2015 2016 2017 2018
EBITDA Margin 2013-2018

28. Profitability Ratios
Industry Average
Spirax Sarco
Effective Tax Rate %
Industry Average
Spirax Sarco
Net Margin %
Source: Thomson Reuters
24.60
22.60
7.2
19.4

29. Earnings Power
29.7%
34.8%
34.3%
33.3%
37.2%
34.0%
42.0%
2012 2013 2014 2015 2016 2017 2018
PRETAXROE%
YEAR
20.5%
INDUSTRY AVERAGE
Return on Equity
Source: Thomson Reuters

30. Earnings Power
Industry Average
Spirax Sarco
Return on Assets
Industry Average
Spirax Sarco
Reinvestment Rate
Source: Thomson Reuters
19.1%
9.4%
21.8%
8.2%

31. 1. Market Expectation
2. Relative Valuation
3. Absolute Valuation
Valuation

32. Market Expectation
7,928.57 5.88% 6.00% 6.40%
Target Price Sales Growth Rate EBIT Growth Rate Net Income Growth
Rate
Analysts
Recommendation
• HOLD 58%
• BUY 21%
• SELL 21%
Sales Trend
From a £1.153 billion
To
£1.369 billion in 2021
EBIT Trend
From 264£ million
To
310£ million in 2021
Net Income Trend
From 183£ million
To
221£ million in 2021
.

33. Relative Valuation

34. Absolute Valuations
5 and 10 Years
Earnings
Power:
• £185.5 MM
• £148 MM
Market Value £6.5 billion
Downside Risk 15%
Intrinsic Value £5 - £6 billion
Recommendation HOLD
Entry Point £5.5 billion
Market Value vs Intrinsic Value
Median Discount Rate (WACC) 7%
Discount Rate Ranges 8%-5%
Perpetual Growth Rate 3%
5 Years Average Operating Earnings £197 million
10 Years Average Operating Earnings £162 million
5 Years Average Depreciation & Amortization £40.2 million
10 Years Average Depreciation & Amortization £31.5 million
5 Years Average Mantainance Capex £40.5 million
10 Years Average Mantainance Capex £34.5 million
Average Working Capital Adjustment £11 million
Assumptions

35. Investment Thesis
1. We believe Spirax-Sarco combines a resilient business model with strong
through-cycle growth opportunity and top-quartile margins and returns.
1. We see multiple growth drivers in the group; structural trend to replace traditional pumps with
Watson Marlow peristaltic pumps.
2. Acquisitions surprise on the upside and driver of possible future upside to forecasts.
WHY HOLD?
RISKS
1. Significant lower industrial production growth.
2. Translation risks on imported materials from higher material costs
driven by base metal prices.
3. Strengthening GBP vs USD or EUR. 1/3 of equipment is made in the UK.
90% of sales are abroad.

36. Technical Analysis

37. Index Charts

38. Position

39. Thank you for your attention
Q&A