Oil and gas arm saves day
SMITHS Group, the last real conglomerate in the FTSE 100, has its fingers in a lot of pies. Most observers expect the group to be split up at some point in the not too distant future, but yesterday investors will have welcomed the safety in numbers. A strong performance at the John Crane division, which is heavily exposed to booming oil and gas investment, helped offset a weaker performance at most of Smiths’ other divisions.
Investors were prepared for bad news from its detection unit, after the firm was forced to put out a profit warning last month. Part of the problem stems from a thin-looking US military order book, but the division has also been hurt by poor execution (the arm’s former chief executive has been given his marching orders). With high fixed costs, operating profit is sure to suffer.
The shares, which tumbled after the profit warning, fell another two per cent yesterday. We think that could create a buying opportunity for those investors who believe in chief executive Philip Bowman’s turnaround strategy.
Since he arrived in 2008, Bowman has consistently pursued higher margins, often at the expense of orders, to great effect. For shareholders that buy now ahead of an eventual demerger, the gains could be considerable.