ii view: engineer Smiths looks forward under relatively new CEO

Full-year results to 31 July

• Adjusted or organic revenue up 5.4% to £3.13 billion
• Operating profit up 3% to £415 million
• Net debt down 45% to £213 million
• Final dividend of 30.2p per share
• Total dividend for the year up 5.2% to 43.75p per share

Guidance:

• Expects year ahead (2025) organic sales growth of between 4% and 6%
• Targeting an operating profit margin of 18% to 20%, up from 2024’s 16.8%

Chief executive Roland Carter said: “I am pleased to report strong organic revenue growth against a record comparator, continued headline operating profit margin expansion and two new acquisitions. I am also pleased to guide to further growth and margin expansion in FY2025 and reaffirm our medium-term financial targets. 

“We are making good strategic, operational and financial progress, and all our businesses are well positioned for compelling value creation.”

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ii round-up:

Smiths Group (LSE:SMIN) is a specialist engineer operating across four arenas. 

John Crane, generating 36% of group revenues, makes items including mechanical seals, filtration systems and rotating equipment. Almost two-thirds of sales go to the oil & gas and renewable energy sector, with other customers including miners, chemical companies and water suppliers. 

Smiths Detection, accounting for 28% of overall revenues, makes threat detection and screening equipment for industries including aviation.

Flex-Tek, at 25% of group revenues, manufactures components that heat and move liquids and gases for the construction, industrial and aerospace markets.

Smiths Interconnect, generating the balance of 11% of revenues, makes connectivity products for industries including aerospace and defence, medical, semiconductor testing and industrial markets.

For a round-up of these latest results announced on 24 September, please click here. 

ii view:

Tracing its history back to 1851, Smiths Group today employs around 15,000 people across more than 50 countries. Shared characteristics for the four divisions include being well-positioned in growing markets, technology-led, and with a high proportion of aftermarket revenues. Group strategy under new chief executive since March, Roland Carter, and former head of Detection, includes the launch of a new efficiency enhancement plan, as well as a focus on investing in proprietary technologies and differentiated products. 

For investors, tough comparatives for John Crane and Detection are expected to see some slowing in growth going forward. Demand from customers such as oil companies, miners, construction and aerospace can prove volatile and sensitive to economic health. A price to net asset value above the three-year average may suggest the shares are not obviously cheap, while currency headwinds can impact with less than 5% of group sales made in the UK.

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More favourably, the relatively new CEO is now attempting to inject renewed vigour back into group strategy. Diversity of product, geographical region and underlying customer sector exist. Exposure to areas such as renewable energy and outer space offer growth potential. Bolt-on acquisitions continue to be made, while an estimated future dividend yield in the region of 2.6% is not to be ignored.  

On balance, and despite ongoing risks, a consensus analyst estimate of fair value sat at close to £20 per share is likely to keep fans of this specialist niche engineer patient.

Positives: 

• Diversity in business type, underlying customers, and geographical location
• High proportion of aftermarket revenue

Negatives:

• Exposure to volatile aerospace markets and companies                       
• Uncertain economic outlook

The average rating of stock market analysts:

Buy