Smiths slumps to bottom of the FTSE despite restoration of dividends

“Even though Smiths Group is the tenth FTSE 100 firm to either re-join or declare its intention to re-join the dividend list, having previously scrapped a planned payment, investors do not seem overly impressed with the engineering conglomerate’s full-year results, as the shares are the worst performers in the UK’s leading stock index today,” says Russ Mould, AJ Bell Investment Director. 

“The understandable lack of any earnings guidance for the 2021 financial year, emphasis on investment for the company’s long-term future (which could weigh on short-term profits) and the absence of a firmer timetable for the delayed, and long-awaited, spin-off of the Medical division are all possible reasons for the share price slide.

“In addition, adjusted pre-tax profit of £278 million undershot the consensus analysts’ forecast, raising the importance of management’s job- and cost-cutting programme, which is designed to save some £70 million a year by 2022.

 
Source: Company accounts. Profit from continuing operations. Medical moved to discontinued operations in 2019. Fiscal year to July.

“Consistent after-market sales at the Flex-Tek, Smiths Detection and John Crane operating units helped to provide a solid bedrock to annual sales and profits, but COVID-19 took its toll on Interconnect and also John Crane’s oil-related businesses, the US construction and aerospace arms of Flex-Tek and demand for security systems at Smiths Detection. Medical was also burdened by extra costs, as it worked to provide ventilators to the UK Government as part of a consortium.

“Nevertheless, cash flow remained robust and shareholders will be pleased to see Smiths Group declare a 35p-a-share dividend, based on a delayed 11p-a-share interim payment and a final distribution of 24p. They compare to payments in the prior year of 14.1p and 31.8p but the return to the dividend list looks like a positive sign for the future.

 
Source: Company accounts. Fiscal year to July.

“Doubters will argue that the dividend is no higher now than it was in 2011 and suggest a rapid return to former highs may not be easy (although Smiths may not be on its own in this respect). Even so, the company is the tenth in the FTSE 100 to declare a dividend or asset its intention to pay one later this year, having previously suspended, deferred, cut or cancelled a planned payment. 

Source: Company accounts

“The ten firms who have stepped up have declared dividends worth £1.8 billion, with two yet to show their hand. The figure still pales compared to the £32.8 billion of dividend cuts announced by FTSE 100 firms so far in calendar 2020. Hard-pressed income seekers will be hoping that the tide is turning a little, as more members of the UK’s premier index start to pay dividends once again, although much will depend upon the extent of the spread of the virus and any economic damage that it does in autumn and winter.”