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Smiths Group PLC ADR SMGZY

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Morningstar’s Analysis

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Economic Moat


Capital Allocation


Smiths' Fiscal 2020 Results In Line, but End Markets Remain Challenged by COVID-19 Restrictions

Analyst Note

| Denise Molina, CFA |

Smiths Group reported in-line full-year 2020 results with a 1% decline in organic revenue and adjusted EBIT margin down 200 basis points to 15%. However, the shares sold off 8% after the release with management declining again to provide guidance, in contrast to some other industrial companies. The underlying difference relative to peers is that around 40% of Smiths' revenue is tied to capital spending by airport operators and the energy sector. We expect the demand recovery to be slow for the company's end markets and forecast a return to revenue growth only in 2024, with just a 0.5% revenue compound annual growth rate for 2019-23. However, we see value in the shares, which trades at a 22% discount to our GBX 1,690 fair value estimate. Growth will come from a return to normal oil consumption levels and airport operators upgrading luggage scanners to analyse liquids and electronic equipment inside luggage. Our narrow moat rating is intact.

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Company Profile

Business Description

With its start as a London jeweler in the 19th century, Smiths Group has for most of its history operated as a company operating disparate but economically attractive businesses. Thematically, it runs businesses that manufacture niche products in security- or safety-sensitive industries. Today, Smiths Group is split across five divisions: mechanical seals, medical supplies, weapons detection, electrical connectors, and specialized hoses. The end customers for these products include NASA, government security or defense departments, and hospitals. Medical is slated for a sale or spin-off.

11-12 St James’s Square, 4th Floor
London, SW1Y 4LB, United Kingdom
T +44 2070041600
Sector Industrials
Industry Specialty Industrial Machinery
Most Recent Earnings
Fiscal Year End Jul 31, 2021
Stock Type
Employees 22,964