Smith & Nephew

graeme at 8:42 a.m. Fri 06 Nov 2009

Smith and Nephew produced low revenue growth in Q3, up just 1% at CER and down in dollar terms (the company reports in US dollars).

The company’s performance is very different from a few years ago. Although it is still producing good profit growth (trading profit rose rose 22%), this is the result of both improved gross margin and lower overhead costs.

The problem is that without revenue growth, the profit growth is not sustainable. Although growth may return when the economy picks up, Smith and Nephew is clearly not the “defensive growth” play it was widely regarded as few years ago. It has withstood recession well, but it has not continued growing fast, and the share price has moved with the market (as investors have adjusted growth expectations to refect this).

At 548p, Smith & Nephew is on a prospective PE of about 15×. This reflects an expected return to long term growth, and the fact that the business is defensive in that it does not shrink during recessions.

We need user contribution, so please suggest stories/links

Comments

You need to login or register to comment