Weakness at the medical division that Smiths Group (SMIN) failed to sell in July held back top-line growth, but there are enough bright spots to justify keeping faith in the engineering conglomerate. Full-year numbers met expectations, most businesses are growing, and further restructuring should save an extra £50m a year. A 30p special dividend was a nice surprise, too, and further acquisitions look likely.
Operating profit before one-off costs grew 1 per cent to £560m, despite a 7 per cent fall at the medical division, where government funding cuts, fewer procedures and a US medical devices tax hit margins. However, record returns generated double-digit profit growth at John Crane, and management expects more of the same in the months ahead. Demand for scanners at airports and shipping terminals drove revenue at the detection division up 8 per cent and a £15m hit to profits from one-off problem contracts was flagged in July. Margins and sales should improve from here.
Detection sales in emerging markets surged 34 per cent and a £36m cost-saving exercise is two-thirds complete. Cuts also helped grow profits at electronics unit, Interconnect, and at flexible hosing business, Flex-Tek, where recovering US residential construction and the aerospace boom swelled both volumes and prices. There should be more to come.
Broker Numis Securities expects adjusted pre-tax profit of £538.7m in 2014, giving adjusted EPS of 99.8p (from £498m and 92.7p in 2013).
SMITHS GROUP (SMIN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,424p | MARKET VALUE: | £5.61bn | |
| TOUCH: | 1,423-1,425p | 12-MONTH HIGH: | 1,456p | LOW: 1,018p |
| DIVIDEND YIELD: | 2.8%† | PE RATIO: | 16 | |
| NET ASSET VALUE | 377p* | NET DEBT: | 50% | |
| Year to 31 Jul | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 2.66 | 371 | 70.8 | 34.0 |
| 2010 | 2.77 | 373 | 75.3 | 34.0 |
| 2011 | 2.84 | 398 | 77.8 | 36.3 |
| 2012 | 3.03 | 366 | 65.4 | 38.0 |
| 2013 | 3.11 | 442 | 90.7 | 39.5† |
| % change | +3 | +21 | +39 | +4 |
Ex-div: 23 Oct Payment: 22 Nov *Includes intangible assets of £1.75bn, or 443p a share †Excludes 30p special dividend | ||||
