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Smith and Nephew boosted by emerging markets growth

Medical devices are in high demand in the Middle East and China
July 28, 2017

After a few years of expensive restructuring, half-year results from medical devices giant Smith & Nephew (SN.) are reassuringly solid. Exclude currency headwinds and the impact of the disposal of its gynaecology unit last year, and revenue rose 3 per cent. Meanwhile, improving efficiencies helped enhance operating profit margins to 17.7 per cent, sending operating profits up 16 per cent to $414m (£316m).

1332p

The biggest growth is coming from emerging markets – a division that had previously struggled due to the weak oil price. In the first six months of 2017 revenue here rose 13 per cent, while the established markets remained flat.

Although research and development spending dropped from 4.9 per cent of sales to 4.6 per cent, Smith & Nephew continues to dominate in medical device innovation. During the period, the group launched a knee restructuring programme on its hand-held robotics device Navio. The system (which looks worryingly like a power drill) is evidently in high demand with surgeons: revenue linked to knee treatments were up 4 per cent in the second quarter, helping to offset a slight decline in demand for hip implant products.

In the year to December 2017, broker Numis has forecast pre-tax profit and EPS of $999m and 87.3ȼ, respectively, (from $955m and 82.3ȼ in FY2016). Strong cash flows of $327m mean the broker expects net debt to fall to below one times adjusted cash profits by the year end.

SMITH & NEPHEW (SN.)   
ORD PRICE:1,332pMARKET VALUE:£11.7bn
TOUCH:1,331-1,332p12-MONTH HIGH:1,390pLOW: 1,065p
DIVIDEND YIELD:1.8%PE RATIO:18
NET ASSET VALUE:480ȼ*NET DEBT:38%
Half-year to 30 JunTurnover ($bn)Pre-tax profit ($m)Earnings per share (ȼ)Dividend per share (ȼ)
20162.333272712.3
20172.343833712.3
% change+0+17+37-
Ex-div:05 Oct   
Payment:01 Nov   
*Includes intangible assets of $3.6bn, or 410ȼ a share    £1=$1.31