ii view: Smiths Group still confident about growth prospects

Full-year results to 31 July

• Adjusted or organic revenue up 8.9% to £3.34 billion
• Operating profit up 10% to £580 million
• Adjusted operating profit margin up 0.6% to 17.4%
• Net debt of £441 million, up from £213 million
• Final dividend of 31.77p per share
• Total dividend for the year up 5.1% to 46p per share

Guidance:

• Expects year ahead (2026) organic sales growth of between 4% and 6%

Chief executive Roland Carter said:

"This has been another successful year for the Group, building on our strong track record of consistent growth and returns. This strong performance reflects the quality of our business and agility managing ongoing macro-economic uncertainties.

"FY2025 has been a pivotal year and the strategic actions we have announced to focus Smiths as a world-class industrial engineering company to unlock significant value and enhance returns to shareholders are well underway."

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

ii round-up:

Smiths Group (LSE:SMIN) today detailed adjusted sales growth that exceeded its own prior forecasts, with the diversified engineer remaining confident in achieving new medium-term financial growth targets detailed in March. 

Full-year adjusted, or organic sales growth to late July of 8.9% beat management’s previous target of up to 8%, with an adjusted operating profit margin of between 21% and 23% now being pursued over the medium term. That’s potentially up from the 0.6% increase to 17.4% achieved over this latest financial year. 

Shares in the FTSE 100 company rose 4% in early UK trading before drifting lower. They came into these latest results up by close to a third over the last year, similar to fellow engineer Melrose Industries (LSE:MRO). The FTSE 100 index is up 12% over that time.

Smiths is currently undergoing a major transformation. It plans to sell or demerge its Interconnect and detection businesses, making items such as airport luggage scanners, with Interconnect now reported as a discontinued operation. Sale proceeds will be mostly returned to shareholders.  

Smiths will focus on its John Crane division, making items such as mechanical seals for oil & gas companies, as well as Flex-Tek, making components to heat and move liquids for industries such as constructions and aerospace.

A final dividend of 31.77p per share payable to eligible shareholders on 21 November, takes the total payment for the year up 5.1% to 46p per share. A total of £398 million of an existing £500 million share buyback had been executed as of 10 September. 

Smiths is forecasting organic revenue growth for the year ahead of between 4% and 6%, with expansion in its profit margin expected to continue. 

A first-quarter trading update is scheduled for 19 November.  

ii view:

Started as a watchmaker and tracing its history back to 1851, Smiths today employs around 15,000 people across more than 50 countries. Now in the process of selling or demerging businesses generating close to two-fifths of overall sales, the company is pursuing a more focused and efficient business operating in the growing areas of energy, industrial and construction. 

For investors, the downside of separating the existing four divisions is reduced business diversity. A total of 55% of sales to the Americas and largely to the USA leaves the group exposed to newly introduced Trump tariffs. Many customers for what will be its remaining John Crane and Flex-Tek divisions are from cyclical industries such as energy, mining, construction and aerospace, while currency headwinds can have a big impact given most sales are generated overseas.

• 10 hottest ISA shares, funds and trusts: week ended 19 September 2025
• Sector Screener: two FTSE 100 stocks with long-term investment potential
• The sector Buffett’s betting on – and where to find value in it

More favourably, a separation of existing businesses should help provide a more focused valuation. Business sale proceeds are largely being returned to shareholders, avoiding the potential for management to reinvest badly. The remaining John Crane and Flex-Tek businesses could be more vulnerable to takeovers, while more than 70 years of consecutive dividend payments leaves the shares on a forecast dividend yield of around 2%. 

In all, four consecutive years of organic revenue growth averaging 7.4%, plus moves by management to enhance shareholder value cannot be overlooked. That said, a share price now broadly matching the consensus analyst fair value estimate of £24.27 may leave the shares looking up with events.    

Positives: 

• A diversity of business type, underlying customer, and geographical location
• High proportion of aftermarket revenue

Negatives:

• Exposure to volatile industries                       
• Uncertain economic outlook

The average rating of stock market analysts:

Buy