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1. Company Snapshot

1.a. Company Description

Smiths Group plc operates as a technology company serving the medical technology, security and defense, general industrial, energy, and space and aerospace markets worldwide.It operates through John Crane, Smiths Detection, Flex-Tek, Smiths Interconnect, and Smiths Medical divisions.The John Crane division offers mechanical seals, seal support systems, hydrodynamic bearings, packing materials, power transmission couplings, and specialized filtration systems.


The Smiths Detection division provides sensors and systems that detect and identify explosives, narcotics, weapons, chemical agents, biohazards, and contraband.The Flex-Tek division offers engineered components that heat and move fluids and gases for the aerospace, medical, industrial, construction, and domestic appliance markets.The Smiths Interconnect division provides specialized electronic and radio frequency board-level and waveguide devices, connectors, cables, test sockets, and sub-systems for applications in the security and defense, medical, general industrial, and space and aerospace markets.


The Smiths Medical division offers infusion systems, vascular access, patient airway, and temperature management equipment products; and specialised devices in areas of diagnostic and emergency patient transport.The company was formerly known as Smiths Industries and changed its name to Smiths Group plc in 2000.Smiths Group plc was founded in 1851 and is headquartered in London, the United Kingdom.

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1.b. Last Insights on SMIN

Smiths Group's recent performance has been driven by several positive factors. The company's robust earnings growth has impressed investors, with a recent stock scan revealing a strong showing in this regard. Furthermore, an analysis suggests that the company's shares may be undervalued by as much as 30%, according to a 2-stage Free Cash Flow to Equity model. Recent strategic moves include the acquisition of Med Graphix Inc., which enhances Smiths Detection's sustainable service offering. This deal allows for the repair, refurbishment, and reuse of critical components, aligning with the company's goals.

1.c. Company Highlights

2. Smiths Group Delivers Strong FY2025 Performance

Smiths Group reported a robust financial performance in fiscal year 2025, with revenue reaching GBP1.95 billion, driven by an 8.9% organic growth across all four businesses. This growth led to a 13.1% increase in operating profit and a 14.8% rise in earnings per share. The actual EPS came out at 0.613, slightly beating estimates of 0.611. The operating profit margin expanded by 60 basis points to 17.4%, driven by operating leverage, pricing, and efficiency improvements.

Publication Date: Sep -23

📋 Highlights
  • Revenue & Profit Surpass Guidance: Organic revenue grew 8.9% (GBP 1.95B total), exceeding 6-8% guidance, with operating profit up 13.1% and EPS rising 14.8%.
  • Margin Expansion: Operating profit margin expanded 60 bps to 17.4%, driven by pricing, efficiency, and operating leverage, with pro forma margin at 19.6%.
  • Strong Cash Generation: GBP 336M free cash flow (99% conversion) and GBP 460M returned to shareholders via dividends/buybacks (total GBP 1.7B over 4 years).
  • Spin-Off Progress: Smiths Interconnect sale expected by 2025 end; Detection separation route to be decided, with proceeds to be returned to shareholders.
  • Future Growth Drivers: 4-6% organic revenue growth guidance for 2026, supported by GBP 65M annual cost savings by 2027 and 22.8% ROCE.

Revenue Growth and Profitability

The company's revenue growth was driven by strong performances across its businesses, with John Crane's organic growth driven by volume increases, particularly in the area of separation seals. The company's pricing strategies and successful execution of new product development contributed to this growth. Flex-Tek also demonstrated resilience in a cautious US construction market, driven by new product offerings like the Blue Series and Python.

Cash Generation and Shareholder Returns

Smiths Group generated strong cash flow, with a cash conversion rate of 99% resulting in GBP336 million of free cash flow. The company returned GBP460 million to shareholders through dividends and buybacks, taking the total to GBP1.7 billion over the past four years. The company's capital allocation strategy prioritizes investments that yield the best returns, as demonstrated by their strong ROCE performance.

Outlook and Valuation

Looking ahead, Smiths expects organic revenue growth of 4% to 6% in fiscal year 2026, driven by a strong order book and continued margin expansion. The company's valuation metrics indicate a P/E Ratio of 25.72, a P/S Ratio of 2.32, and an EV/EBITDA of 12.83. The Dividend Yield stands at 1.93%, while the Free Cash Flow Yield is 5.08%. These metrics suggest that the market has priced in a certain level of growth, but the company's strong performance and outlook may justify further upside.

Strategic Initiatives

The company is progressing with the separation of Smiths Interconnect and Smiths Detection, aiming to complete the transaction for Smiths Interconnect by the end of 2025. The sale process is progressing well, and proceeds from the sale will be returned to shareholders. The company's focus on innovation, commercial excellence, and market adjacencies is expected to drive above-market growth over the medium term.

3. NewsRoom

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Smiths Group Shares Rise on $2.6 Billion Screening Unit Sale

Dec -03

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Smiths to sell airport scanning business in £2bn deal

Dec -03

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Looking at the Narrative for Smiths Group After Margin Gains and Strategic Shifts

Nov -22

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John Crane launches Performance Plus™ - a new era in service excellence for rotating equipment

Nov -13

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Smiths Detection US, LLC. Appoints Former TSA Administrator John S. Pistole to Board of Directors

Nov -12

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How Recent Developments Are Shaping the Smiths Group Investment Story

Oct -21

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Smiths agrees sale of interconnect arm in £1.3bn deal

Oct -17

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Smiths Group to Sell Smiths Interconnect to Molex in $1.75 Billion Deal

Oct -17

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (4.56%)

6. Segments

John Crane

Expected Growth: 4.5%

John Crane's 4.5% growth is driven by increasing demand for energy-efficient solutions, expansion in emerging markets, and a strong aftermarket presence. Additionally, the company's focus on digitalization, investment in new product development, and strategic acquisitions have contributed to its growth momentum.

Smiths Detection

Expected Growth: 4.2%

Smiths Detection's 4.2% growth driven by increasing security concerns, rising passenger traffic, and growing demand for explosive trace detection. Strong sales in hold baggage screening and checkpoint solutions, as well as expansion in Asia-Pacific and Middle East regions, contribute to growth. Additionally, investments in digital technologies and product innovation enhance competitiveness.

Flex-Tek

Expected Growth: 4.8%

Flex-Tek's 4.8% growth is driven by increasing demand for flexible tubing and hose assemblies in the medical and industrial markets, coupled with Smiths Group's strategic investments in product innovation and geographic expansion. Additionally, the segment benefits from a strong aftermarket presence and a growing presence in emerging markets.

Smiths Interconnect

Expected Growth: 5.0%

Smiths Interconnect's 5.0% growth is driven by increasing demand for high-reliability connectivity solutions in aerospace, defense, and industrial markets. Growing adoption of 5G and IoT technologies, coupled with rising need for miniaturization and high-speed data transmission, fuels growth. Additionally, the segment benefits from Smiths Group's diversified customer base and strong research and development investments.

7. Detailed Products

John Crane Mechanical Seals

Mechanical seals for pumps, agitators, and compressors in the oil and gas, chemical, and power industries

John Crane Seal Support Systems

Seal support systems for mechanical seals, including seal flush plans, barrier fluid systems, and seal gas supply systems

Interconnect Technologies

Custom interconnect solutions for the medical, aerospace, and industrial markets

Flex-Tek Industrial Hoses

Industrial hoses for the transfer of fluids, gases, and bulk materials

Smiths Detection Security Screening

Security screening solutions for airports, ports, and critical infrastructure

Smiths Medical Infusion Systems

Infusion systems for the delivery of medications and nutrients in healthcare settings

8. Smiths Group plc's Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Smiths Group plc is medium due to the presence of alternative products and services in the market.

Bargaining Power Of Customers

The bargaining power of customers for Smiths Group plc is low due to the company's strong brand reputation and customer loyalty.

Bargaining Power Of Suppliers

The bargaining power of suppliers for Smiths Group plc is medium due to the presence of multiple suppliers in the market.

Threat Of New Entrants

The threat of new entrants for Smiths Group plc is high due to the low barriers to entry in the industry.

Intensity Of Rivalry

The intensity of rivalry for Smiths Group plc is high due to the presence of multiple competitors in the market.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 21.53%
Debt Cost 7.18%
Equity Weight 78.47%
Equity Cost 7.18%
WACC 7.18%
Leverage 27.43%

11. Quality Control: Smiths Group plc passed 5 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Smiths

A-Score: 6.0/10

Value: 2.7

Growth: 5.1

Quality: 6.7

Yield: 3.1

Momentum: 9.0

Volatility: 9.7

1-Year Total Return ->

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Stock-Card
GEA

A-Score: 6.0/10

Value: 2.7

Growth: 5.1

Quality: 6.6

Yield: 3.8

Momentum: 9.0

Volatility: 8.7

1-Year Total Return ->

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Stock-Card
Valmet

A-Score: 5.7/10

Value: 5.1

Growth: 4.8

Quality: 5.1

Yield: 7.5

Momentum: 6.5

Volatility: 5.0

1-Year Total Return ->

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Stock-Card
Rotork

A-Score: 5.5/10

Value: 2.0

Growth: 4.4

Quality: 8.0

Yield: 3.8

Momentum: 6.0

Volatility: 8.7

1-Year Total Return ->

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Stock-Card
IMI

A-Score: 5.4/10

Value: 1.8

Growth: 5.1

Quality: 6.0

Yield: 2.5

Momentum: 8.0

Volatility: 9.0

1-Year Total Return ->

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Stock-Card
Fluidra

A-Score: 4.8/10

Value: 3.1

Growth: 6.2

Quality: 5.3

Yield: 4.4

Momentum: 4.0

Volatility: 5.7

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

24.12$

Current Price

24.12$

Potential

-0.00%

Expected Cash-Flows