Institutional Initiation: The risks to value of holding on to Detection
Smiths' Detection operating margins have more than halved since 2003, and its contribution to group EBIT has fallen from 25% to 8% since 2008. This reflects structural changes in the global market for detection systems (scanners for airports, ports and borders, and military use) and a key technology weakness (lack of CT scanners). We see further market developments, especially fast growth (and even faster emerging competition) from China, as further disadvantaging Smiths. This strongly suggests to us that Smiths should aim to preserve value for its shareholders through a near-term sale of Detection.Smiths Group is a global technology company. Co. is organized into five divisions: John Crane, which provides mechanical seals, seal support systems, engineered bearings and power transmission couplings; Smiths Medical, which provides infusion systems and vascular access products; Smiths Detection, which provides sensors and systems that detect and identify explosives narcotics, weapons, chemical agents, biohazards and contraband; Smiths Interconnect, which provides electronic and radio frequency board-level and waveguide devices; and Flex-Tek, which provides engineered components flexible hosing and tubing that heat and move fluids and gases.
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