Smith & Nephew (S&N) reported slower revenue growth in H116 than management expectations, due principally to the trading problems experienced by the sector in the emerging markets, particularly China and the Middle East. The company indicates that this is improving, as China starts to return to growth (as seen in the Sports Medicine division in Q2), but we expect the weakness to continue through H2. Its 6% premium on 2016e P/E to the average of its global orthopaedic peers is supported by its le...
Smith & Nephew’s growth acceleration and margin expansion in Q2 should continue in H215, more reflecting internal changes than improvements in market fundamentals. Its c 13% premium on 2015 P/E to its global ortho peers is supported by its brisker growth and strategic value.
Smith & Nephew’s Q115 was bolstered by a recovery in Advanced Wound Care, the ArthroCare integration and its emerging markets exposure. We believe the company is well on track to raise its sales growth and trading profit margin in FY15e. Its 16% FY15 P/E premium to its global orthopaedic peers is supported by its improving growth profile and its strategic value.
Smith & Nephew delivered a fair Q4 and inspired confidence in a broadly based improvement of underlying revenue and earnings growth in 2015e and beyond. We believe its five-pillar strategy (innovation, simplification, acquisitions and growth in established and emerging markets) is gaining ground in the increasingly competitive market focused on value for money.
Smith & Nephew hosted an analyst meeting in London on 24 September to present its new orthopaedic sales concept Syncera. We consider it a bold attempt to rationalise the extremely costly sales function, by replacing sales reps with computer-enabled processes, for example inventory management, product selection and staff training. Smith & Nephew is likely to gain market share as a result, albeit at a lower value per implant.
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