The final week of the quarter

Concerns of persistent inflation on both sides of the pond, as supply chain shortages spread their net further.

Article updated: 28 September 2021 8:00am Author: Richard Hunter

The oil price has seen the results of a current imbalance arising from worries of tightening supply, with the price now having risen by 55% in the year to date. Meanwhile the shortage of van drivers is having an impact on the broader delivery of goods in both the US and the UK, and with wage rises likely to follow, there is an increasing unease that inflation could be more persistent than originally thought.

In the US, this drove a switch out of growth stocks into value, with both the Nasdaq and S&P500 losing ground. The Dow Jones index posted a modest gain, with rising yields boosting financial stocks and the oil price inevitably causing a spike in energy stocks.

For the UK meanwhile, the picture is also muddied with a potential reticence from investors to commit fresh capital as the quarter comes to a close. In the year to date, the FTSE100 remains ahead by 9.3% and the FTSE250 by 15.2%, although more recently progress has been somewhat pedestrian with broader global economic concerns in play.

Smiths Group confirmed a binding agreement to sell its medical devices unit to ICU Medical of the US for $2.7 billion, with over half of the net proceeds to be returned to shareholders in the form of share buybacks.

The strategic rationale to focus on its core industrial technology capabilities, alongside a restructuring programme which is already showing the desired effects, is proof positive of a company with high aims.

Operating margin has improved as a result of tighter cost control, while free cash flow has grown significantly. Operating profit overall grew by 7%, which was a slight miss to market expectations. Further headwinds came in the form of foreign exchange translation, while revenues dipped by 6% as largely expected. An otherwise upbeat outlook statement noted ongoing supply chain challenges and economic uncertainty as potential bumps in the road in the nearer term.

Mixed trading in the first part of the year has dragged on a share price which has fallen 13% in the last six months. Over the last year, however, the shares have gained 5%, as compared to a jump of 19% for the wider FTSE100, with investors remaining convinced by the wisdom of the sale of the medical devices unit. With clear operating momentum and a brisk order book in place, the market consensus of the shares as a strong buy reflects solid optimism on prospects.

More from Richard Hunter: read more articles directly on the interactive investor website.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

Richard Hunter

Head of Markets, interactive investor

Richard has over 30 years of stockmarket experience and is one of the UK’s foremost commentators on market matters and a regular contributor for the BBC (BBC News Channel, Wake Up to Money and the Today Programme), CNBC and Bloomberg. Richard’s expert commentary also appears across the national and specialist press. He previously held senior positions at Hargreaves Lansdown and NatWest Stockbrokers.

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