Smith & Nephew PLC

Smith & Nephew PLC (LON:SN) is a diversified advanced medical technology company, which hold market-leading positions in advanced wound management, trauma and extremities, sports medicine, and hip and knee implants. The operations of the group are differentiated in three operating segments, namely Sports Medicine & ENT, Orthopaedics & Trauma and Advanced Wound Management, with the aim to simplify and improve the operating model.

Recent News
On 4^th November 2019, the company announced that the Chief Executive Officer of the group, Roland Diggelmann, has been appointed as Director of the Board of Accelerate Diagnostics Inc (AXDX). AXDX is listed on NASDAQ.

Third Quarter Trading Update (as on 31^st October 2019)
The company announced the trading update for the third quarter ended 28 September 2019. On an underlying basis, the company’s revenue increased by 4 per cent to $1,246 million in Q3 FY19 as compared with the corresponding period of the last year, due to an increase in all three franchise. The company’s reported growth of 6.5 per cent includes a foreign exchange headwind of 140bps and a benefit from acquisitions of 390bps. The increased revenue is also driven by the surge in the United States region (up by 9.7% at reported and 2.7% at underlying) and Emerging Markets (up by 15.5% at reported and 16% at underlying).

In the first nine months of 2019, the company’s underlying revenue increased by 3.9 per cent, due to the teams across all three global franchises. The company announced on 21 October 2019 that Roland Diggelmann has been appointed as Chief Executive Officer.

Revenue Performance by Franchise and Regional Basis

(Source: Company Website)

In the current quarter, the Orthopaedics franchise surged by 3.4 per cent, due to the good momentum established in H1 FY19 and also delivered growth in Knee Implants, Hip Implants, Other Reconstruction, and Trauma. From its strong first-half performance, the Sports Medicine & ENT franchise delivered revenue growth of 6.9% in Q3 FY19, driven by an increase in Sports Medicine Joint Repair, Arthroscopic Enabling Technologies, and ENT. Led by an improvement from the previous quarter, the Advanced Wound Management franchise delivered revenue growth of 2.1% in Q3 FY19. This increase was driven by the Advanced Wound Bioactives growth and Advanced Wound Devices growth.

In the third quarter of 2019, the company delivered 1.5% revenue growth from Established Markets.Decent growth was registered from the United States region. In Emerging Markets, the performance remained robust, with revenue increased by 16%. The company again delivered a stand-out performance in China.

Share Price Performance

Daily Chart as at November-22-19, before the market closed (Source: Thomson Reuters)

On 22nd November 2019, Smith & Nephew PLC shares were trading at GBX 1,675.50 at the time of writing before the market close (at 8:29 AM GMT), up by 0.30% against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,998.40/GBX 1,376. The company's stock beta was 0.35, reflecting the lower volatility as compared to the benchmark index.

Valuation Methodology


Conclusion
In the current period, the company had a decent performance. The company has raised the full year 2019 guidance by 50bps and anticipate underlying revenue growth in the range of 3.5%-4.5%. While the reported revenue growth rate is anticipated to be in the range of 3.9%-4.9% including a decrease of 230bps from foreign exchange rates prevailing on 25^th October 2019 and an increase of 270bps from the Ceterix, Osiris, Leaf, BrainLab OJR and Atracsys acquisitions.

The company expect for the financial 2019, trading profit margin to be approximately 22.8%, which is at the lower end of the previously guided range. The company continue to anticipate the tax rate on trading results for 2019 to be in the range of 19%-21%. The group is exposed to the effects of political and economic risks, including the impact of Brexit, as the market expects macro-economic uncertainty or downturn in the UK economy as a result of Brexit.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the current price of GBX 1,675.50 (as on 22nd November 2019), while we look for any upcoming catalysts in the near term.

Weir Group PLC

London Stock Exchange-traded Weir Group Plc (LON: WEIR) is a British Industrial Engineering company providing innovative engineering solutions, which enables its customers to be more innovative. The company caters to the needs of its customers from mining, aggregates, oil & gas sectors.

Interim Management Statement (as on 5^th November 2019)
For the third quarter ending 30 September 2019, the company’s order from continuing operations surged by 4 per centas compared with the previous year period, while on a like-for-like basis, it was flat. Original equipment orders surged by 41 per cent or 40 per cent on a like-for-like basis, due to the Iron Bridge order of £100 million in Minerals. Aftermarket orders decreased by 7 per cent or 15 per cent on a like-for-like basis, driven by the accelerated downturn in North American oil and gas markets. The minerals orders surged by 17 per cent, with Original Equipment (OE) surged 72 per cent, excluding Iron Bridge orders Original Equipment order which declined by 22 per cent to £20 million. On a year-to-date (YTD) basis, Original and Aftermarket orders rose by 22 per cent and 4 per cent, respectively, which was broadly in line with the management’s expectations. During the third quarter of 2019, the group's oil and gas vertical order reduced by 32%, due to escalated capital constrains and challenging market conditions in North American markets with original equipment orders declined by 26 per cent, and aftermarket orders were down by 34%, respectively.Over the three month period, the company generated a positive book-to-bill ratio of 1.08.

Share Price Performance

Daily Chart as at November-22-19, before the market closed (Source: Thomson Reuters)

On 22nd November 2019, Weir Group PLC shares were trading at GBX 1,390.50 at the time of writing before the market close (at 10:15 AM GMT), up by 0.76% against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,819.72/GBX 1,222.50. The company's stock beta was 1.45, reflecting the higher volatility as compared to the benchmark index.

Valuation Methodology

*Peers: IMI PLC, Rotork PLC, Smiths Group PLC, Spirax-Sarco Engineering PLC, Vesuvius PLC, and Bodycote PLC.

Conclusion
The innovative process design, which will decrease water and energy consumption by over 30 per cent as compared with traditional mills, reflects the focus on making mining smarter and growing technology offering, more efficient and sustainable. For the industry, the company will be the main reference in hastening the adoption of sophisticated HPGR (high-pressure grinding rolls) technology.

In mining, the company project pipeline stays decent, but in Q3 FY19, the company saw some project approvals deferred as driven by the negative macro sentiment.The demand in North American oil and gas market was impacted by a deepened emphasis on cash preservation in the current quarter. In the short-term period, the company has undertaken a cost reduction programme of 30 million pounds in the Oil & Gas division to support competitiveness. In the Oil & Gas division, the company anticipate the operating profits for the full year 2019 to be lower than the prior guidance. The company’s ESCO segment witnessed favourable trading conditions and is expected to continue.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the current price of GBX 1,390.50 (as on 22nd November 2019, before the market closed), while we look for any upcoming catalysts in the near term.
*All forecasted figures and Peer information have been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.773969 GBP.

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