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Smiths Group benefits as pension deficit drops

Published: 08:05 17 Nov 2015 EST

Smiths
Smiths pointed to good trading in its security scanner business

Shares in industrial conglomerate Smiths Group (LON:SMIN) soared after a pension shake-up and a smaller-than-expected sales dip.

The stock gained 79.5p, or 8.6%, to 1005p as a valuation of the group's pension scheme showed a deficit of £285mln - £250mln lower than the previous valuation in 2012.

Smiths said it had agreed a "material" reduction in the level of annual cash contributions into the scheme, resulting in a £36mln-a-year increase in its free cash flow.

Finance chief Chris O'Shea said: "Increasing free cash flow by £36mln per annum will underpin the group's ability to invest in attractive opportunities and to continue to grow dividends in line with long-term growth in underlying earnings."

Smiths, which supplies airport x-ray scanners, medical equipment and oil & gas (O&G) engineering components, also unveiled a 4% decline in first quarter revenue, smaller than some analysts had expected.

The group said good growth in its security business and an-inline performance in its medical activities had offset lower trading in its John Crane O&G arm.

Chief executive Andy Reynolds-Smith said: "Against a backdrop of challenging conditions in some of our end-markets, our expectations for the full year remain broadly unchanged."

CMC Markets analyst Jasper Lawler said Smiths had surprised markets with "sales that fell only 4% in the last quarter."

"A bigger sales drop was expected in light of reduced demand from the oil and gas sector which is paring back capital expenditure," he said. "It was Smiths's other business lines such as in the medical field that helped weather the O&G storm."

Other analysts also pointed to the potential increased demand for security equipment following the terrorist attacks in Paris and elsewhere.

Augustin Eden at Accendo Markets said the group's "capability in threat & contraband detection is likely to be in ever increasing demand."

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