Stock of the week: Smiths Group
Smiths Group is a multinational diversified engineering business which is headquartered in London. The company delivers products and services through five divisions:
- John Crane, an oil and gas support services company
- Smiths Detection, which sells security scanners
- Smiths Medical and Smiths Interconnect: electronic communications parts and services
- Flex-Tek, which manufactures parts for heating liquids and gas for various industries.
Over the years, Smiths has experienced mixed performances from its various divisions. Those that have exposure to the oil & gas sector were unsurprisingly impacted by the plunge in oil prices and product delays and competition has seen its Medical element suffer. Nevertheless, the rise in government budgets and a boom in construction in some developed markets has balanced overall performance out.
The group has a relatively new management team in place which should help its strategic focus in product development, particularly as it has plans to heavily invest in research and development. Moreover, the group should have some momentum behind it given that many believe the worst may be over in the oil services market and government pressures ease, predominantly in Europe.
Throughout its existence, there have been calls for the conglomerate to be broken up, although this move would put the smaller businesses at risk of being offloaded, and in its current form the shares carry less risk.
We like Smiths Group because of its diversity in nature. Furthermore, it continues to ramp up exposure to emerging markets and there have been small contract wins, both of which are positive news for growth.
As a result, we continue to recommend Smiths Group as a ‘buy’ for investors seeking a balanced return and willing to accept a medium level of risk.