Conglomerates are once again an endangered species. General Electric faces a break-up under new boss John Flannery; GKN has just succumbed to a takeover by Melrose that will ultimately see the 259-year-old business dismembered.
Smiths Group is an outlier. While everyone else is busy breaking up, the FTSE 100 engineer is still trying to grow its collection of disparate businesses.
Its chief executive, Andy Reynolds Smith, 51, was hired from GKN in 2015 by chairman Sir George Buckley with a remit to grow Smiths a reversal of his predecessor Philip Bowmans strategy.
The engineer, who got fed-up waiting for the top job at GKN to become vacant, has put his stamp on Smiths. Its shares surged on this new-found optimism, and Reynolds Smith scythed through senior management with gusto. Pensions have been de-risked, insuring big chunks of its liabilities through bulk annuity deals. The idea of breaking up Smiths was put firmly to bed.
Lately, though, things have stalled. Almost three years into Reynolds Smiths tenure, and investors are growing impatient.
Reynolds Smith has pinned his hopes on the full-year results, promising a strong surge in revenues.
This is not a done deal. First-half revenues fell 1%, and were 4% lower when currency impacts were included. Medical sales, which were flat in the first half, are dependent on the success of new product launches. Sales of scanners and other detection equipment, which tumbled 11% in the first half, hinge on a surge in orders later this year.
Reynolds Smith may have killed off the idea of a break-up for now, but he needs to start delivering on his promises. Until then, hold.
It's a great plan.......................... get rid of some & buy others.
Basic problem though is anybody can sell businesses below market value (Bearings, Artificial Lift & IVF to name three) and then pay top dollar for an acquisition, namely Morpho who's performance to date has disappointed. What will be next I wonder.
We either need a serious large acquisition or get rid of an entire division or two otherwise current trading will continue to disappoint the market.
However, to maximise potential benefit, decent levels of Profit have to be made.
I would suggest meeting 'Management Expectations' are no longer good enough, as they are set very low and undemanding.
We need growth, and the first half year results to date are somewhat lagging.
Shares at £16.35 are a definite sell.
"Car parts maker TI Fluid Systems is finally set to float on the London Stock Exchange, raising a â¬425 million (Â£380 million) a year after pulling out of an IPO derailed due to market uncertainty in the wake of the Brexit vote.The cash - less than ..."
Having said that, there's still a load of doyen dead wood in Medical, who have very limited or even zero impact, just collecting !
These results in particular were extremely disappointing taking 'us' in real terms backwards similar to the ill fated LK era.
Time for another Re-org, but more imaginative / cutting I would suggest this time round.
Well Burt might have won on points, but Tessie knew the truth !
Why oh Why BOD ?
Despite currency being really favourable throughout most of the period, my expectations for the results certainly will not be !
Surely it's time the management expectations were raised beyond mediocrity, and bonuses curtailed accordingly.
"David Smith has been the lead manager of LSE:HHI:Henderson High Income trust since 2014. Most of the portfolio is in equities, but Smith is also able to hold up to 20% in bonds. Currently, the split is 90:10 in favour of equities, a historic low ..."
"""Engineer Smiths led the fallers after chief financial officer Chris O'Shea stepped down with immediate effect. The company assured that current trading and the outlook remain in line with previous guidance.""""
Not so sure, zero growth !
I think the markets will react negatively once full analysis of results is concluded (with all the clever accounting re-adjusted). I cannot see many of the Brokers changing their stance from 'hold' to 'buy'
Half year results will meet management expectations, but only thanks to ROE translation which was better than forecast. There are no plans to sell a major division although further thinning remains a distinct possibility.
Still plenty to give in terms of Market Cap valuation in my opinion !
Posted this on the GKN website but thought it worth a read for Smiths investors. I was a Smiths investor but sadly sold out too early :-
The article is worth a read to put the whole thing in context.
GKN features in the article alongside BAE, BT, Barclays, G4S and others.
What's striking is that GKN has the largest relative pension to the size of it's business and as the article highlights the threat to all these companies dividends, GKN seems to also stick out as it has the highest payout ratio of 74% -- next nearest is Smiths with a payout ratio of 65%.
I discounted Shell which has a payout ratio of 616% -- i.e. it's nowhere near covered.
There's an awfy lorra jargon in the new feller's results thingy ... I hate words like "geographies" and "verticals" but, all in all, these results weren't too bad. Even John Crane did a bit better than might have been expected, and cash flow, which is the all important thing, was up a bit.
Just goes to prove how meaningless this current JPMC Valuation of Smiths Group is.
This time last year they had a valuation of only £12.50 per share.
Yet the 2016 predicted profit will be less than 2015, despite this their valuation miraculously goes up some 20%.
Totally ridiculous !
Unless there is a major 'corporate upheaval' which is not mentioned or considered ?!
"Smiths Group's shares gained on Tuesday as JP Morgan Cazenove reiterated an 'overweight' rating and lifted the price target to 1,585p from 1,300p.
JP Morgan said the technology company's 2016 financial year ended on a "very positive note", with the trading update on 9 August indicating that full year operating profit was well ahead of consensus expectations of £473m, although below the 2015 level of £511m.
"The full-year (July year-end) results on 28 September are to be accompanied by the presentation of the new management team's strategic vision for the group and we expect this, together with good results for 2016, to provide a further stimulus for the shares to continue to outperform the sector," JP Morgan said.
"With 18% upside to our price target and the prospect of the positive news flow continuing, we are reiterating our 'overweight' recommendation."
JP Morgan raised its 2016 revenue and earnings per share forecast by 2% to £2.93bn and 81.7p respectively, given the movement in exchange rates.
The broker said Smiths is trading at a "substantial discount" to the sector in terms of price-earnings ratio and enterprise value/ earnings before interest, tax and amortisation multiples "despite the prospect of delivering an operating profit margin more than 400bps above the average for our universe"."
Took my profit on these today,sold one hour ago at 1351.04. Having purchased in two blocks at 1280.825 and 1,302.70 in April and May 2014 (I was partially swayed by Questor buy recommendation!!) It's been a tough ride over last two years or so but whether I chose the "right" share to sell to raise funds for my daughter only time will tell.
Nett gain of 7.04percent but a profit is a profit !
Just happy to see SMIN at these levels, up over 40 percent since the start of this year. I was well underwater.
Now I am just happy to be showing a paper profit at last. 5% of my slightly less shrunken wad here so I am breathing a sigh of relief.
I have a feeling that I am going to need funds for my daughter and her family in the next few weeks so maybe it will time to cash in these chips.
It's largest revenue contributor continues to struggle and the exuberance in the detection segment is nothing permanent or sustainable, the stock is fairly priced at the most, although tilted towards overvalued side, http://bit.ly/2b4foJb
good for dividends, so holding is not a bad idea, but i don't think initiating a new position on the back only smallest segment delivering consistent growth is a good idea, so much diversification in a single company has hardly delivered much appreciation
" Engineering conglomerate LSE:SMIN:Smiths Group has beaten expectations against a tough backdrop thanks to its strong detection business and weak sterling. It wasn't enough to inflate profits, but the shares have broken out of their bullish ..."
Yes, confusing indeed. My takeaway is that margins are under pressure so it's quite surprising that the price has popped up given that this year is expected to be worse than last year.I have zero interest in management's "expectations".
I really only keep holding this puppy for an extremely bad reason ... at some stage someone will take it over. Bring it on!
Well that was confusing, if only you could understand what it all means.
Answers on a postcard ...................
However, it does seem to say that if it wasn't for ROE it would have been poor !
Hopefully this gets reflected in the executive bonus payments.
It's surprising the share price is holding up so well, although re-entry to the FTSE 100 must be helping !
Read Panmure Gordon & Co's note on SMITHS GROUP, out this morning, by visiting https://www.research-tree.com/company/GB00B1WY2338
"We believe the new management is taking increasing risks with the balance sheet to counter years of underinvestment. The Detection business, which has been losing market share for years, faced a sharp fall in revenues. Morpho fills a technology gap but we doubt there was much competition for this asset because our analysis shows that Morpho has also been losing market share. While the music is playing (money is cheap), we fear the management will continue to dance as other divisions also need to buy profits. Once the music stops ..."
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