EUR 850.00 For Business Accounts Only

Morningstar | Smiths Group is well positioned as a leading player in niche markets.

We think Smiths Group is well positioned as a leading player in niche markets. Its John Crane mechanical seal division provides a base of high-margin, recurring revenue, while Smiths Detection offers good growth opportunities. We also see potential for improving returns in the next couple of years.Global security screening is likely to see robust growth, with demand for detection devices extending beyond traditional locations, such as airports and borders, to more general public venues. Smiths Detection's broad array of products and strong brand puts it in a strong position to capture this growth. We believe that demand for detection machines, particularly outside airports, will lead to higher growth rates in the future. The 2017 acquisition of Morpho Detection with specialization in new explosives detection technology in hold-baggage screening complements Smiths' product set and puts it in a better position to capture greater share in the future. In the European Union, this new technology, which includes computed tomography, will be mandatory in all hold-baggage screening machines by 2022. The medical division, which is one of the largest divisions for the company, aside from John Crane and Detection, is in transition, looking to ramp up new product introductions and recertify its products in Europe after a regulatory decision forced it to pull products in 2018. We don't foresee any issues in the actual recertification, but it will take around two years, meaning full product availablity may not be until 2020. The long-term question on the medical division is whether it can expand its sector market share as it is currently confined to a fairly narrow niche space. The success of new products over the next year or two will be our gauge for that. For now, we asssume the division will grow at the lower end of market demand rates, that is, not much above 3%.