Berenberg initiates coverage on Smiths Group at 'hold'

Analysts at Berenberg initiated coverage on diversified engineering business Smiths Group with a 'hold' rating and 1,757.0p target price on Friday, stating the firm's diversification provides some relative earnings resilience but reckons stronger performance exists elsewhere in the sector.

Berenberg said Smiths' exposure was supported by structural growth drivers including energy security and energy transition, the need for greater global safety and security, increasing air travel globally, and growth in data and communications.

"The strength of the aftermarket model and multi-year order books of Smiths Detection provide some resilience for earnings, but with less gearing to an industrial recovery, which we think favours other stocks in the sector on a 12-month view," it noted.

In terms of earnings, the German bank forecasts for a roughly 10% earnings per share compound annual growth rate for FY24-FY26, slightly ahead of consensus, and its forecasts also factor in an annual £100.0m share buyback, which boosts EPS.

"Smiths trades on 15.3x FY25 P/E and 11.4x EV/EBIT. While we see attractions in Smiths, we think there is better value in other stocks in the sector," added Berenberg.

Reporting by Iain Gilbert at Sharecast.com