Join our community of smart investors

Smiths to demerge medical arm

The industrials group's half-year numbers were held back by its medicals business
March 22, 2019

Having long deliberated about its medical division, engineering conglomerate Smiths (SMIN) has decided to spin off the ailing Smiths Medical off in a separate float, planned for the first half of 2020.

IC TIP: Buy at 1,456p

Smiths said last year it was weighing up several options, including a possible demerger or sale of the business to a rival or private equity firm. This followed the failure to agree terms with California-based ICU Medical (US:ICUI) over a proposed combination of their healthcare operations. Negotiations to sell Smiths Medical to two different parties also fell through in 2011 and 2013.

Smiths chief executive Andy Reynolds Smith said a demerger of Smiths Medical would "lead to two stronger companies", both of which are focused on "accelerating the execution of their plans and maximising the opportunities in their respective markets".

Meanwhile, chief financial officer John Shipsey confirmed Smiths' shareholders will have their shares effectively taken back, and be awarded a share in the existing group and another in Smiths Medical for every share currently held. The search for a separate, new chief executive officer is also under way. 

The announcement was welcomed by City analysts, including those at JPMorgan Cazenove who see "opportunities and potential for separated and focused industrial and medical assets as greater than in the combined entity".

Smiths’ half-year results suggest the timing could be right for a split, too, as the medical division acted as a drag on the group’s first-half performance for a second year running. Underlying operating profit fell 2 per cent to £246m, but actually rose 2 per cent excluding the impact of Smiths Medical, which experienced regulatory and contractual pressures. The first half was also hampered by the timing of deliveries in the detection business, which provides security equipment. Both divisions are expected to return to growth in the second half, the latter owing to continued demand across air transportation, ports and borders.

Analysts from Stifel forecast full-year 2019 earnings per share of 97.9p, against a prior year level of 90.7p.

SMITHS (SMIN)   
ORD PRICE:1,456pMARKET VALUE:£5.8bn
TOUCH:1,456-1,457p12-MONTH HIGH:1,810pLOW: 1,257p
DIVIDEND YIELD:3.1%PE RATIO:20
NET ASSET VALUE:544p*NET DEBT:43%
Half-year to 31 JanTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20181.5420026.313.8
20191.5717430.314.1
% change+2-13+15+2
Ex-div:4 Apr   
Payment:26 Apr   
*Includes intangible assets of £2bn, or 512p a share