Smith & Nephew faces long and painful activist fix
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Aimee Donnellan
LONDON, July 4 (Reuters Breakingviews) -Smith & Nephew SN.L should prepare for a long and painful activist treatment. On Thursday, Swedish investor Cevian Capital announced it had taken a 5% stake in the $11 billion UK-listed maker of hip joints and wound care kit. Its medicine is likely to involve stripping out costs. If that fails, more radical remedies like a breakup may be necessary.
Smith & Nephew has many ingredients activists look for in a target. Its share price has fallen 42% over the past five years, whereas the FTSE 100 Index .FTSE is up by 10%. Endless management churn can’t have helped: during that same period the group has had three CEOs and three chief financial officers. Its boss, Deepak Nath, has introduced a 12-point plan to increase the company’s performance.
Investors, however, are not convinced. Including debt, Smith & Nephew is valued at $14 billion, just 13 times its expected operating profit in 2025, according to LSEG data, a steep discount to its five-year average of 18 times. Cevian has not yet disclosed its demands, but the activist could push Nath to take a bigger axe to Smith & Nephew’s bloated cost base, which resulted in an operating margin of just 17% last year. U.S.-listed rival Stryker SYK.N generated a 24% margin.
Assume Smith & Nephew can close half the profitability gap with Stryker, and its EBIT margin would reach 21%. Apply that to the $6.7 billion of revenue the London-listed firm is expected to deliver in 2027, and operating profit could total $1.4 billion that year. Next, assume a leaner, more profitable Smith & Nephew is valued at 17 times forward EBIT, again closing half the gap with Stryker’s multiple, and its enterprise value could exceed $24 billion in two years. That’s nearly 70% higher than its current worth.
If Nath fails, deeper surgery may be necessary. Last year the orthopaedic division that makes artificial hip and knee joints was the slowest growing of Smith & Nephew’s business units. Selling that to a rival, like Stryker, could free up cash to invest in the other two units, wound care and sports injuries. Alternatively, switching its primary listing to the United States may attract more investors, and a higher valuation. But a recovery is likely to take time. As activist campaigns go, Smith & Nephew will be more than a quick fix.
Follow @aimeedonnellan on X
CONTEXT NEWS
Activist investor Cevian said on July 4 it has taken a 5% stake in Smith & Nephew, the London-listed manufacturer of medical devices.
Shares in Smith & Nephew were up 6.3% at 1,047 pence by 0734 GMT.
Graphic: Smith & Nephew’s valuation is lagging rivals https://reut.rs/3VOCqIp
Editing by Neil Unmack and Oliver Taslic
면책조항: XM Group 회사는 체결 전용 서비스와 온라인 거래 플랫폼에 대한 접근을 제공하여, 개인이 웹사이트에서 또는 웹사이트를 통해 이용 가능한 콘텐츠를 보거나 사용할 수 있도록 허용합니다. 이에 대해 변경하거나 확장할 의도는 없습니다. 이러한 접근 및 사용에는 다음 사항이 항상 적용됩니다: (i) 이용 약관, (ii) 위험 경고, (iii) 완전 면책조항. 따라서, 이러한 콘텐츠는 일반적인 정보에 불과합니다. 특히, 온라인 거래 플랫폼의 콘텐츠는 금융 시장에서의 거래에 대한 권유나 제안이 아닙니다. 금융 시장에서의 거래는 자본에 상당한 위험을 수반합니다.
온라인 거래 플랫폼에 공개된 모든 자료는 교육/정보 목적으로만 제공되며, 금융, 투자세 또는 거래 조언 및 권고, 거래 가격 기록, 금융 상품 또는 원치 않는 금융 프로모션의 거래 제안 또는 권유를 포함하지 않으며, 포함해서도 안됩니다.
이 웹사이트에 포함된 모든 의견, 뉴스, 리서치, 분석, 가격, 기타 정보 또는 제3자 사이트에 대한 링크와 같이 XM이 준비하는 콘텐츠 뿐만 아니라, 제3자 콘텐츠는 일반 시장 논평으로서 "현재" 기준으로 제공되며, 투자 조언으로 여겨지지 않습니다. 모든 콘텐츠가 투자 리서치로 해석되는 경우, 투자 리서치의 독립성을 촉진하기 위해 고안된 법적 요건에 따라 콘텐츠가 의도되지 않았으며, 준비되지 않았다는 점을 인지하고 동의해야 합니다. 따라서, 관련 법률 및 규정에 따른 마케팅 커뮤니케이션이라고 간주됩니다. 여기에서 접근할 수 있는 앞서 언급한 정보에 대한 비독립 투자 리서치 및 위험 경고 알림을 읽고, 이해하시기 바랍니다.
