Smith & Nephew upgrades guidance

That explains the thinking behind the new chief executive’s buying spree. The five acquisitions made thus far in 2019 are expected to contribute to reported revenue growth of between 3.6 per cent and 4.6 per cent in the full year. For now, investors needn’t worry about the financial implications of this feverish buying: interim net debt rose to just 1.3 times annual adjusted cash profits and the dividend payments were covered 1.9 times by free cash flow.

But Smith & Nephew needs to be careful that its acquisition extravaganza doesn’t come at a cost to innovation, which drove a 3.9 per cent increase in interim underlying revenues (reported numbers were held back by unfavourable currency movements). Strength across all three group subsidiaries prompted management to upgrade its like-for-like top-line guidance for 2019. Management must also be careful acquisitions don’t dent group profitability. Capital employed was $1bn higher than the 2018 interim stage, which may impact return on capital in the annual results.

Consensus broker expectations currently suggest adjusted earnings per share of $1.01 in the year to December 2019, flat on last year. But with management increasing its revenue guidance and reiterating trading profit margins of around 23 per cent, broker upgrades are likely to follow.