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Smiths Group has a much sharper focus on organic growth now, says Barclays Capital

Cash flow has seen a material, positive change as the benefits of the focus on working capital, operational improvements and a reduction in pension contributions affect the business
Medical device
Given Smiths’ historical counter-cyclical performance, BarCap wouldn’t be surprised to see investors remain more focused on the more cyclical companies

Barclays Capital has initiated coverage of Smiths Group PLC (LON:SMIN), the technology company, with an ‘overweight’ rating.

The bank’s positive view of the FTSE 100 is based on what it sees as a material change under the current management team.

READ: Smiths Group expects healthy tax cut in US

“Since Andy Reynolds Smith took over as CEO in 2015 we have seen a return to active management of the portfolio, an operational improvement seen through much improved cash dynamics and a much greater focus on organic growth,” BarCap said.

The bank has crunched the numbers and reckons it now has a higher free cash flow margin than its peers for the first time since 2010.

The pension deficit, which has been a millstone around the company’s neck for many years, is diminishing; in the last financial two years Smiths has reported an accounting surplus and as a result, the group is putting less into the pension pot.

READ: Smiths Group posts solid growth in reported profits, revenue, but underlying growth more constrained

Management has been a lot more active of late in reshaping the portfolio, getting shot of six businesses and acquiring two new units since 2015.

“Conglomerate businesses of this nature need to remain proactive and this had slowed under the previous CEO,” opined BarCap.

The bank has a price target of 1,800p, some 260p above the current share price.

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Smiths Group Timeline

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