You are at the airport, about to go on holiday. You should be excited. Instead you are fumbling for that plastic bag of toiletries you overfilled the previous evening. You are trying to remove the cover from your laptop, while making sure there is no loose change in your pockets. And someone behind you is sighing loudly because you seem to be taking too much time.
Overseas travel often seems more like an obstacle course than a time for fun, these days. But that may be about to change. UK engineering outfit Smiths Group has devised an upgraded scanning machine that can check passengers’ bags just as they are, saving time, reducing hassle and at the same time improving security.
The machines are already in use in Italy and parts of America, they are on trial at Heathrow and should be installed in busy airports worldwide over the next few years.
Bag a bargain: Smiths Group shares could rise after it devised an upgraded airport baggage scanner
Demand for Smiths shares should increase too. Now £14.35, they have seen some ups and downs, but new chief executive Paul Keel has injected fresh energy into the business and the firm operates in growing markets, such as security, connectivity and carbon capture.
Smiths can trace its roots back to 1851, when Samuel Smith opened a jewellery shop in South London. By the early 20th Century, the company had already morphed into a high-tech engineering firm, making some of the first speedometers – including one for King Edward VII’s Mercedes – and developing specialised aviation kit for the Royal Air Force during both World Wars.
That pioneering heritage remains at the heart of the business to this day. The company operates under four main divisions – Smiths Detection, Smiths Interconnect, John Crane and Flex-tek.
The detection business does not just make airport scanning machines for hold and carry-on luggage. It also supplies Nato with chemical defence kit that alerts soldiers to harmful substances in the air. And it provides cities with security equipment, from checkpoints to pathogen sensors, which can identify whether Covid-19 or other airborne diseases are present. Smiths Interconnect helps to make cables and satellites work better. Its kit enables in-flight wi-fi, improves satellite navigation and even allows the Mars Exploration Rovers to connect with Earth. The business also checks semi-conductors to make sure they work properly – a huge growth market.
Flex-tek makes flexible cables largely used in American homes and on planes and it has been growing at pace.
John Crane is a leading producer of specialised seals that prevent greenhouse gases escaping from pipes and terminals when oil and gas are on the move. The group is already helping energy firms to reduce their emissions, but it is also working on new technology to transport greener forms of power, such as hydrogen.
Smiths Detection has been hit by Covid-related travel restrictions, but that is already easing off, while every other division is making good progress, so turnover grew by just over 3 per cent in the six months to January 31 and profits rose 11 per cent.
Keel is determined to do even better in the future, targeting annual organic sales growth of 4-6 per cent and consistent, double-digit profits growth.
The company ploughs substantial sums of money into research and development, but there is always plenty left over for dividends for investors, so payouts rose through the pandemic and should continue to do so.
Many businesses are nervous, with Vladimir Putin on the warpath, inflation rising and economies under pressure. Smiths is not immune from these headwinds, but the company operates in critical markets, which should see growing demand in an uncertain world.
Importantly too, in every one of its divisions, Smiths does not just design and make products, it also maintains them, often generating more money from after-care than from initial sales.
Analysts forecast a 5 per cent increase in turnover to £2.5billion for the year to this July, with profits up 6 per cent to £394million and a dividend of 40.2p for 2022, compared with 37.7p last year.
Smiths also completed the sale of its medical division in January, for more than £2billion.
The business was a long-running drag on the group, and Keel has been using some of the proceeds to buy back shares, a move that should feed through to higher dividends in the future.
Midas verdict: Smiths is a top-flight engineering business, renowned around the globe. The group has disappointed in the past but, armed with Keel’s vigour, a presence in some of the most important markets worldwide and a reputation for pioneering tech, the future looks bright. At £14.35, the shares are a buy.
Traded on: Main market Ticker: SMIN Contact: smiths.com or 020 7004 1600
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