Smiths Group (LSE:SMIN) is expected to face a slower recovery at its John Crane division as disruption linked to the Middle East continues into the next financial year, according to Citi.
The bank lowered its underlying forecasts for the engineering group by around 2% for the 2027 financial year, although its expectations for the current year remain broadly unchanged.
Citi analyst Martin Wilkie retained his 'buy' rating, arguing that Smiths could command a higher valuation as profit margins improve over the next two to three years.
John Crane, which makes mechanical seals and other equipment for energy and industrial customers, has experienced a drag from the Middle East and Wilkie expects part of this pressure to continue into next year, delaying the division's recovery slightly.
The bank's forecasts were also updated to reflect the earlier-than-expected completion of the sale of Smiths Detection at the end of June.
The effect of the associated share buyback from the sale will take longer to feed through to earnings per share, however, with Citi expecting the full benefit once the programme is completed during the first half of the 2028 financial year.
Despite the near-term reduction, Wilkie continues to expect gradual margin expansion over the coming years.
