Interactive Investor

ii view: Smith & Nephew cautions despite growing sales

4th November 2021 15:17

Keith Bowman from interactive investor

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Covid and supply chain challenges are being addressed, but ageing populations remain. We assess prospects.  

Third-quarter results to 2 October

  • Total group revenue up 5.5% to $1.27 billion (£0.93 billion)

Guidance:

  • Expects to deliver at the low end of full year guidance, reflecting impact of Delta variant and supply constraints

ii round-up:

Medical device maker Smith & Nephew (LSE:SN.) today cautioned that its full-year performance would be at the lower end of previous guidance given hinderances from both the Delta Covid variant and supply chain constraints. 

Revenue for its biggest business, Orthopaedics, fell 5.9% on an underlying basis, as the pandemic continued to cause disruption to hospital procedures such as hip and knee replacements. However, sales for its other two businesses, representing two-fifths of overall sales, again delivered underlying revenue growth on a pre-pandemic 2019 basis.  

Smith & Nephew shares rose by more than 3% in UK trading, having fallen by around 6% over the last year. Shares for rival wound care application maker ConvaTec Group (LSE:CTEC), originally spun out of phama company Bristol-Myers Squibb (NYSE:BMY), are up by around 16% over that time, while the broader FTSE 100 index is up by over 20%. 

Total Smith & Nephew sales rose by 5.5% on a headline basis or by 2.3% on a currency and acquisition adjusted basis to $1.27 billion (£0.93 billion).

Sales for its Advanced Wound Management division climbed by 10.9% on an adjusted basis. Underlying sales for its remaining Sports Medicine & Ear, Nose and Throat (ENT) business improved by 6.5%, given ongoing strong demand for joint repair and a gradual recovery in ENT procedures.  

On a geographical basis, sales for its biggest region, the USA, grew by 0.5% to $633 million. Sales across established markets including the UK rose by 7.2% to $398 million, while sales for the emerging markets led the way, growing by 18.3%. 

Management’s continued push to improve efficiency and performance will now see it bringing both its Sports Medicine and Orthopaedics businesses under one leadership team.

Full-year results are scheduled for 22 February. 

ii view:

Founded in Hull in the UK in 1856, Smith & Nephew today operates in more than 100 countries, employing around 18,000 people. Its products include knee and hip replacements, arthroscopic enabling technologies and both advance wound care and wound devices. 

Under the chief executive appointed late 2019, Smith’s operating model has been revamped. It is now targeting bolt-on acquisitions to bring in new technologies and strengthen market-leading positions. But the pandemic has caused significant disruption. Sales over the Covid-hit 2020 fell 14% following what was a record year in 2019.

For investors, an uncertain outlook, given surgical and supply chain disruption, offers caution. Like many other companies, staff shortages and inflation also provide challenges. But some recovery has been seen, with overall sales up in this latest quarter. A forecast dividend yield of around 2% is also not totally derisory in an era of ultra-low interest rates. In all, while some caution remains sensible, a backdrop of ageing populations should leave the company on the long-term watch list of many investors. 

Positives: 

  • Both product and geographical diversification
  • Exposure to favourable demographics

Negatives:

  • Ongoing Covid related disruption
  • Subject to currency headwinds

The average rating of stock market analysts:

Strong hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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