Regulatory Costs Lower Near-Term Profits for Smiths, but Not Enough to Justify the Share Sell-Off
We would take advantage of the share price weakness in narrow-moat Smiths Group following the company's profit warning due to extra costs in its medical division (28% of revenue). The costs are related primarily to regulatory changes, but also to changes in distribution. In total, we believe the extra costs will be around GBP 25 million per year, with about GBP 15 million regulation-related, from fiscal 2018 to fiscal 2020. This lowers our EBIT in those years by 4%-5% per year; however, as the e...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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