Shares round-up: activist investor takes stake in this FTSE 100 company

The recovery potential of heavily discounted Smith & Nephew (LSE:SN.) shares was today pushed into the FTSE 100 spotlight after an activist investor revealed a 5% stake.

The interest of Cevian Capital, which has previously taken positions in Aviva and Vodafone, comes as S&N works on a 12-point plan to become a “consistently higher-growth company”.

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The S&N initiative, which was launched by chief executive Deepak Nath in July 2022, aims to deliver a margin above 20% by next year. Last year saw a 20-basis point improvement to 17.5%, a performance impacted by headwinds from China.

Nath, who is due to report half-year results on 1 August, recently made no change in the company’s 2024 guidance of 5-6% revenues growth and a margin of at least 18%.

The company, which dates back to 1856, generates more than half its revenues from the United States through orthopaedics, sports medicine and advanced wound management.

Nath said in early May: “We are confident in our outlook and look forward to all three of our business units contributing as we deliver another year of strong revenue growth.”

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The guidance leaves S&N’s valuation on about 14.5 times forecast earnings, which represents a 45% sector discount versus the five-year average.

The shares set a five-year low last autumn and remain 11% lower over the past year despite today’s surge of 79.3p to 1065.5p on the back of Cevian’s stake building.

In a recent “Buy” note, UBS said its discussions with investors showed the US knees segment that accounts for 9% group sales is at the forefront of the bear thesis.

The broker believes this has overshadowed other parts of the business, such as Wound Devices which represents 6% of group sales and is delivering robust growth.

UBS said: “We believe investors doubt the growth algorithm of at least 5% annual revenue expansion and above 50 basis points margin expansion, driven by a sceptical view on the US Knees turnaround.

“This underestimates the degree of diversification within the S&N portfolio in our view, and particularly overlooks the margin expansion potential from other businesses such as Wound Devices where profitability is likely well in excess of the group level, as is growth.”

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The City bank has a target price of 1,200p, having held a “Sell” recommendation up until last summer.

In the FTSE 250, the shares of Spectris (LSE:SXS) and Victrex (LSE:VCT) showed signs of recovery today after their year-to-date falls of more than 20%.

High-tech measuring instrument maker Spectris rallied 50p to 2,900p after it announced the $260 million (£205 million) acquisition of Boston, Massachusetts-based SciAps.

The move for the specialist provider of handheld instruments used in materials analysis will boost the company’s position in markets including mining, batteries and pharmaceuticals.

It follows the June warning that operating profit for 2024 is likely to be “at or marginally below” the bottom end of City forecasts for £232-259 million. That’s down from £262.5 million in 2023.

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Reasons for the setback included weaker Chinese demand associated with the slowdown in sales of electric vehicles and weaker pharmaceutical demand.

Chief executive Andrew Heath said today: “Value-enhancing M&A is central to our compounding growth strategy. SciAps is an excellent business and a great addition to Spectris Scientific, bringing complementary technology and strengthening our offering.”

Victrex shares rose 12.5p to 1,162.5p after the performance polymer solutions firm said its growth outlook for 2025 had been boosted by signs of improvement in several end-markets. The company’s key sectors include electronics, automotive, oil and gas and medical.

The recovery optimism was clouded, however, by the admission that continued de-stocking in the medical sector has made it more “challenging” for the business to grow profits in the second half of the current financial year.

That follows a 16% decline in 2023 profits to £80 million after what chief executive Jakob Sigurdsson described as “one of the most challenging years” for the chemicals sector.

In today’s third-quarter update, volumes rose 20% on a year earlier and revenues by 2% to £74 million after average selling prices were impacted by a softer medical performance.