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Aviation holds up, but Smiths still unsure on prospects

The engineering conglomerate has decided to fund the delayed interim dividend of 11p
September 24, 2020

Sales at Smiths Group (SMIN) held up remarkably well in the year to the end of July, though the negative effects of the pandemic are still in evidence. The shares were marked down on results day as management declined to issue guidance for FY2021, while statutory profits pulled back sharply, reflecting a squeezed gross margin and mounting financing losses. Profitability was also held in check by a combined £55m in restructuring costs and write-downs relating to trade receivables and an impairment of capitalised development projects.

IC TIP: Hold at 1,344p

Despite the ongoing disruption to the economy, the industrial conglomerate thought it appropriate to fund the delayed interim dividend of 11p, though the annual pay-out was still down a quarter on FY2019.

We can expect the restructuring programme to gather pace through the remainder of this year and into 2021, with associated annual benefits of £70m expected by the following year. The group plans to move ahead with the previously announced separation of Smiths Medical (treated as a discontinued asset) once wider uncertainties dissipate, though the segment has been put to good use through active involvement in efforts to tackle the coronavirus outbreak.

Sales for the key aviation segment of Smith’s Detection business increased through the period even though the civil aviation industry has been clobbered, as demand for hold bagging systems and computed tomography screening remained healthy.

FactSet consensus gives EPS of 68.4p for July 2021, rising to 83.9p in FY2022.

SMITHS GROUP (SMIN)  
ORD PRICE:1,344pMARKET VALUE:£ 5.33bn
TOUCH:1,343-1,345p12-MONTH HIGH:1,779pLOW: 790p
DIVIDEND YIELD:2.6%PE RATIO:82
NET ASSET VALUE:599p*NET DEBT:48%
Year to 31 JulyTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20162.9534665.642.00
20173.2860114443.25
2018 †2.3328729.644.55
2019 †2.5030435.445.90
2020 †2.5513316.435.00
% change+2-56-54-24
Ex-div:22 Oct   
Payment:20 Nov   
*Includes intangible assets of £1.56bn, or 395p a share. † Figures reflect the treatment of Smiths Medical as discontinued operations. NB: FY2020 dividend includes delayed interim dividend of 11.0p.