How Soon Is Now? Smiths Group Trading Guide

Smiths Group Trading Guide

Smiths Group plc is a UK engineering company, listed on the London Stock Exchange.
Smiths Group is commonly regarded by the business press as one of the UK’s subtle engineering success stories – for, while the firm is certainly not a household name, it has operations in almost 60 countries worldwide, and is also a member of the FTSE 100 Index.

The model for British engineering companies in the contemporary epoch has been to outsource materials and manufacturing to poorer regions overseas, while developing technology closer to home; this approach allows UK engineering firms to keep costs low (expenditure on labour and resources is significantly reduced by moving this side of business abroad) while continuing to offer products of peerless innovation and quality. Smiths Group is certainly an exponent of this strategy and has arguably utilised it more effectively than many competitors, in that the company has taken occasion to establish informal operations in many of the regions where its goods are manufactured. Localised production and marketing expertise allows the company to sell its products directly to native vendors and suppliers, without the significant combined cost and risk of establishing dedicated factories or outlets in international markets. Such features could certainly whet the appetite of investors for Smiths Group shares.

Smiths Group trades on the quality of its products and has a demonstrable record of offering cutting-edge solutions that few (if any) others can replicate or invent. There are five separate divisions of the company, each catering to a different sphere. Some investors view such a diverse service offering as cluttered and unattractive, in that the more markets a company is involved in, the more risk a company is exposed to. However, others may see diversity as supremely compelling, in that a varied product range across a number of standalone divisions means that slowdown in one field can be counterbalanced or offset entirely by success in another. On the other hand, though, the obvious response to that reasoning is that gains by one division can be counterbalanced or superseded by losses in another. Whether this feature marks out Smiths Group shares as either a potential buy or a must avoid, is a matter for investors themselves.

One objective issue facing Smiths Group, however, is that much of their annual revenue comes from government contracts – they vie to provide particular products and services to official agencies and bodies. Again, this can be a plus and a minus against Smiths Group shares – some investors favor shares that vie for government budgets, as their revenues are effectively ring-fenced, and consistent contracting by a government body speaks to a company’s viability and strength.

However, periods of reduced government spending (such as those which have accompanied the years following the 2008 financial crash) naturally mean lower budgets for governmental agencies and less investment in projects requiring the services of an external provider. Investors wanting a slice of Smiths Group may wish to wait until the global economy starts moving anew.

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Kit Klarenberg is a freelance journalist and communications professional, specialising in finance. Connect with him on LinkedIn, or Twitter.

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