Analysts have long taken the view that Smiths Group would be better off without its medical division, but when the conglomerate announced that it had managed to offload the unit, they were left feeling distinctly flat.
Smiths Medical, which makes ventilators, syringes and needles, played an important role during the pandemic, but it has been a thorn in the side of management, which recognises that it does not fit easily with the engineering group’s broader business.
Three years after announcing its intention to spin off the business, Smiths said yesterday that it had struck a $2.3 billion deal with TA Associates, the private equity firm, and will retain a 30 per cent stake in the business. Paul Keel, chief executive, said that the sale would allow Smiths to become a “more focused industrial technology company with compelling opportunities for growth”.
Analysts were less enthusiastic. “The fact that this proposal should bring the long saga of Smiths Medical to a close and secure an exit for the group is welcome,” analysts at Stifel said, “but the price realised is clearly disappointing. Previous bids for this asset have been reported as being closer to £3 billion than £2 billion.”
Shares in Smiths fell by 157½p, or 10 per cent, to £14.14½, making it the biggest faller on an otherwise tepid day for the FTSE 100. London’s senior index closed at 7,105.72, up 24 points, or 0.3 per cent. After opening in the red, the FTSE 250 inched 0.3 per cent, or 80.98 points, higher to 23,289.65.
Advertisement
A string of upbeat earnings reports helped to lift stocks even though fears about the spread of the Delta variant of the coronavirus are weighing on confidence, particularly as China is battling to combat the strain in at least 14 provinces. Jeffrey Halley, an analyst at Oanda, a foreign exchange platform, said: “Concerns [are] rising once again that the global recovery could be thrown off track by the virus. What is spooking markets is China. It’s not a huge reach to extrapolate even more supply chain disruptions, especially if it proves as elusive to control for Chinese authorities as it has to officials globally.”
BP was the biggest riser in the FTSE 100 after announcing a $2.4 billion profit in the second quarter and lifting its dividend by 4 per cent. BP said it would give its shareholders $1.4 billion through share buybacks, an announcement that caused its share price to surge by 16¼p, or 5.5 per cent, to 306p.
The mid-cap index was boosted by Direct Line Insurance, which reported a 10 per cent increase in profits in its half-year results and enjoyed a 16½p, or 5.5 per cent, rise in its price to 316p as a result.
Cineworld dragged on the index after analysts at Bank of America struck a cautious tone. Although customers are starting to return to cinemas, they said that admissions would be at only 90 per cent of pre-pandemic levels by the end of the year. Even this “could prove optimistic given Covid-19 delta variant concerns,” the bank said, while cutting its price objective from 117p to 75p. The shares fell 1¾p, or 2.8 per cent, to 64¾p.
Among the small caps, Keller Group shares jumped by 7.1 per cent, or 62p, to 933p after it unveiled first-half results. The engineer said that the worst of the pandemic was behind it and that it would easily exceed its full-year forecasts. Analysts reiterated their “buy” ratings in response. Peel Hunt raised its forecasts for profit before tax by £5.5 million to £77.5 million.
Advertisement
Rightmove in a good direction
The property market has defied every obstacle thrown at it over the past year. When economic growth collapsed by almost 10 per cent, house prices registered record growth. Then experts said that the end of the stamp duty relief would create a cliff-edge for demand, but the market has been resilient so far.
Rightmove, the property search website, has been a significant beneficiary of the boom and, despite warnings that growth would slow, analysts said yesterday that the company’s prospects look good. Berenberg upgraded Rightmove to “hold”, accepting that its “previous thesis — that Rightmove would experience slowing top-line growth and margin pressure as it struggled to extract higher average revenue per advertiser from its estate agency customers — is unlikely to play out in the medium term.”
It added: “With the UK real estate market in rude health and likely to remain robust even once the reduced stamp duty incentive comes to an end in September, it is hard to see what could really hinder Rightmove.”
Berenberg increased its price target from 455p to 710p. Shares in Rightmove rose 4.4p, 0.6 per cent, to 723¾p.
Wall Street report
Optimism over quarterly earnings results drove indices higher. The Dow Jones industrial average closed on 35,116.40, up 278.24 points, or 0.8 per cent, while the S&P 500 had its 42nd record close of the year, up 35.99, or 0.8 per cent, at 4,423.15.
