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Porvair is a quality business with defensive characteristics, but it is priced for perfection

Porvair (PRV:AIM) 760p

Gain to date: 20.6%

Original entry point: Buy at 630p, 26 September 2019


Specialist, high end filters manufacturer Porvair (PRV:AIM) reported record revenues on 3 February of £144.9m, up 13% for year ended 30 November 2019, while adjusted pre-tax profit was 9% higher to £14.8m, both slightly higher than consensus estimates compiled by Refinitiv.

The strategy is to focus on specialist, bespoke design of products whose replacement is mandated by regulation or quality accreditation and which ideally have a long life cycle.

Around 80% of revenues are recurring, driven by heavily regulated markets, which give the business some defensive qualities in a tough
macro environment.

That said some divisions aren’t immune to the cross-currents of world trade tensions, as evidenced by the 6% revenue contraction in the Metal Melt Quality division which designs and manufactures porous ceramic filters for the filtration of molten metals.

Shares highlighted the premium rating of 23.9 times forecast earnings at the outset, arguing that it was justified by good earnings visibility, defensive characteristics and attractive growth prospects.

Today the rating has crept up to around 30 times 2020 forecast earnings. Broker Shore Capital says this is in line with Japanese peer Yamashin Filter and a circa 20% discount to US peer Pall.


SHARES SAYS: While this is a fantastic business, the higher rating adds extra risk which is harder to justify. We’re minded to take profits while the going is good.

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