Smiths Group [SMIN] share price falls on full-year figures

The Smiths Group share price is lower today on the back of its full-year figures announcement this morning.

Revenue slipped by 2% to £2.54bn, and headline operating profit fell by 23% to £327m. Statutory group profit jumped from £227m to £267m. The restructuring programme that was announced during the summer is underway.

Due to the uncertainty surrounding the health crisis, no guidance was offered – which wasn’t a surprise. The future trading relationship between the UK and the EU remains uncertain. Smiths are confident there will be minimal impact regardless of the outcome, as 95% of its revenue is derived from outside the UK, so that should offer some reassurance to traders. The total dividend was 35p, which is a 24% fall on the year. It is not unusual for dividends to be cut in light of the pandemic.

Smiths Group share price rallies; price target lifted

In recent months a string of major banks have either upgraded their rating on the Smiths Group share price, or else lifted their price target. Morgan Stanley, Barclays and Credit Suisse were some of the big name finance houses that are now more bullish on the stock.  

Smiths Group's share price rallied in the first couple months of 2020, and just before the pandemic hit, the stock was only 2% shy of the record high that was set in June 2018 – so sentiment was clearly bullish. The wider sell off in the stock market hammered the share price and it fell to its lowest level in over a decade. Since the lows of March however, the Smiths Group share price has clawed back 66% of the ground it lost because of the health crisis.

The Smiths Group share price has been pushing higher for six months and a break above 1,530p should put February’s highs on the radar. A move lower from here could find support at 1,300p.

Restructuring costs to deliver savings

In late June, the company announced a trading update covering the first 10 months of the year. Underlying revenue from continuing operations increased by 2%, while revenue in the first four months of the second half ticked up by 1%. The group confirmed that all 75 manufacturing sites were in operation, but it cautioned that costs could rise. The pandemic didn’t have a big impact on the firm but operating amid a health emergency can be costly, as many firms have found out.

In the update, it was revealed that there will be a reduction in headcount in an effort to keep a lid on costs. No details of job losses were given at the time. It was reported that restructuring costs would come to £65 million, which would be spread across this year and 2021. Management predicted that the changes would deliver £70 million in benefits each year from 2022.  

Recently, Smiths has won contracts relating to the pandemic. The medical division has partnered with the US government with respect to a mass vaccination programme, and the detection business has teamed up with Attomarker for the development of a triple antibody testing device for Covid-19.

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