Wednesday newspaper share tips: Smiths Group's pension contributions make it a buy

Both The Times’ Tempus and The Telegraph’s Questor kept a close eye on Smiths Group in the papers on Wednesday.

Shares in the technology company surged on Tuesday on the back of relatively solid first quarter results as well as announcing lower pension scheme contributions will lead to an extra £36m annualised free cash flow by 2017.

Questor said the pensions deal safeguards the company's dividends, which makes the company more attractive to investors. It also means the company can now look at which parts of the business they can do without.

“Management did not make clear their strategy, but profits are rising in the medical and detection business, and Interconnect and Flex-Tek are in line with expectations, while the John Crane business struggles.”

It highlighted that industrial pump maker Weir was interested in a merger with the company according to rumours earlier in the year.

Questor noted it has a prospective dividend yield of 4.3% and shares are trading on 12 times forecast earnings, which looks good value given possible changes over the next year, and said it’s worth a buy.

Tempus also agreed with Questor, saying the company has arrived at an opportune time after a number of problems in the past. It also highlighted the parts of the business that aren’t pulling their weight.

“John Crane inevitably will suffer from weakness in oil and gas, but is hanging on to customers that will need higher-margin after-sales.

“Detection, which makes airport scanners and the like and has consistently underperformed, seems to have managed the transition from supplying pieces of machinery to full services — and this is not a market that is going to shrink, as you will not need me to remind you.”

However Tempus said that it’s too soon to say what the company’s new management might do in the next few months, and reminded readers that it has been a contender for a break-up for a while that it’s not worth getting excited about.

With the pension surplus, it removes a large barrier to future moves by the company, and for that reason Tempus recommends buying the shares long term.