Full details are expected in its interim results.
Smiths Group surges after announcing plans to break up conglomerate
- Shares up 4% in early trading as investors positively receive news that the group’s medical division and core industrial tech businesses will be separated
- Details of the proposed plans are expected to be revealed in its interim results in March, but expectations for the year remain unchanged
- We currently recommend Smiths Group as a ‘buy’ for investors seeking a balanced return and willing to accept a medium level of risk
UK engineering conglomerate Smiths Group reported a first quarter trading update this morning which saw shares up by 4% in early trading. The main topic of discussion has been its announcement that it planned to separate out its underperforming medical devices division, Smiths Medical, from the rest of the business in order to allow it to concentrate on its core industrial technology businesses.
While this division is a leading supplier of specialised medical devices and equipment, the announcement follows failed attempts to sell the struggling business which has recently been impacted by regulatory and contract challenges. We can expect a more detailed update on the group’s proposed separation plans at the interim results in March next year.
This news will not come as a complete surprise to investors or the market; as a rather old-style conglomerate there has long been talk of a break-up in order to take advantage of the sum of the parts adding up to more than the share price. Therefore it is expected that the separation could strengthen both Smiths and Smiths Medical as they maximise the opportunities in their respective markets.
In regards to its other divisions, there has been good growth at John Crane which has seen acceleration in original equipment orders and strong aftermarket demand, while Smiths Detection is expected to show improvement in the second half based on a robust order book.
Overall, expectations for the year remain unchanged, based on trading over the first quarter. While this guiding for expected improvement in the second half may temper investors’ enthusiasm regarding news of the proposed separation, we continue with our buy recommendation for investors seeking a balanced returned and willing to accept a medium level of risk.
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