Government cuts and the US medical devices tax will make life tough for Smiths Group (SMIN) in the second half. A further slowdown in parts of the once impregnable John Crane seals business is likely, too. Still, bigger than expected profits at both the Detection and Flex-Tek divisions brought first-half underlying operating profit in on target at £253m and full-year estimates are largely unchanged.
Underlying operating margin was up across the board except in the group's medical division, held back by £10m of extra spend on new products and sales and marketing in emerging markets. Expect a drop in full-year profits there, warns Smiths. And while selling mechanical seals and bearings to oil companies grew profits at John Crane by 7 per cent to £102m, demand from turbo machinery and industrial clients has slowed and sales are unlikely to improve much this year.
Delays at the Pentagon are clouding the outlook for electronics unit Interconnect, too. However, big orders for Smiths' X-ray scanners in airports and shipping ports swelled profit at the detection unit by over half to £31m. Even the US military kept buying its chemical detectors, and further cost cuts mean the second half should equal last year's blockbuster effort. And a booming aerospace sector and US housing market recovery should fuel growth at flexible hosing business Flex-Tek.
Broker Numis Securities forecasts full-year adjusted pre-tax profit of £511m and adjusted EPS of 96p (from £496m and 92.6p in 2012).
SMITHS GROUP (SMIN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,320p | MARKET VALUE: | £5.19bn | |
| TOUCH: | 1,319-1,321p | 12-MONTH HIGH: | 1,342p | Low: 975p |
| DIVIDEND YIELD: | 2.9% | PE RATIO: | 17 | |
| NET ASSET VALUE: | 308p* | NET DEBT: | 70% | |
| Half-year to 31 Jan | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 1.41 | 111 | 21.4 | 11.8 |
| 2013 | 1.48 | 188 | 35.8 | 12.5 |
| % change | +5 | +69 | +67 | +6 |
Ex-div: 27 Mar Payment: 26 Apr *Includes intangible assets of £1.7bn, or 435p a share | ||||
