Trying to make sense of the prospects for artificial joints and medical devices maker Smith & Nephew is tricky, as the company is something of a paradox. On the one hand, its shares enjoy FTSE 100 status and it has the sort of defensive profile that pension funds love. On the other, its markets are dominated by giant US companies and it seems unable to match either their scale or profits. That's partly why Smith & Nephew is perennially seen as a takeover target and, as a result, its shares have become a play-thing of traders. So a recent spike in the price, following first-half results for 2012 when the dividend was substantially hiked, opens another opportunity to short-sell the shares.
- Dividend boosted
- Sound finances
- Sedate growth of medical devices markets
- Time needed to build emerging markets presence
- Dubious record on acquisitions
- Prospects linked to mature economies
The problem with the shares' re-rating is that Smith & Nephew's underlying market, while overtly stable, is essentially weak. The second quarter saw some of the major companies report improvements in the US, particularly for prices, but these were more than offset by austerity pressure in Europe, which is set to worsen as the continent drifts back into recession. Analysts at broker Investec Securities attribute most of the improvement to orthopaedic companies benefiting from changes in sales mix and growing their market share, with underlying demand showing few signs of improvement. The global market for medical devices grew by about 2 per cent, which Smith & Nephew matched.