Soft growth and little visibility on the turnaround is the verdict of HSBC on Smith & Nephew PLC (LON:SN.), the medical equipment maker.
The bank has downgraded S&N to ‘hold’ and sliced a quid from its target price, which has moved to 1,400p.
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Ahead of the artificial hip-maker’s third quarter results on November 1, HSBC has predicted low year-on-year revenue growth to US$1.2bn, with 2.4% organic growth and a slight improvement in the Reconstruction (hip & knee replacement) business; other than that, growth patterns should be similar to previous quarters, HSBC suggested.
In the first half of 2018, the Accelerating Performance and Execution (APEX) programme, initiated at the end of 2017, incurred restructuring costs, primarily cash, of US$58mln that the company thinks will result in annualised benefits of more than US$50mln.
“With this year’s muted organic growth, we expect cost savings from the APEX programme to be eaten up by adverse operating leverage effects. We believe the company needs to prove it can sustainably grow in line with or above its underlying markets of c4% to trigger a re-rating,” HSBC said, explaining its downgrade from ‘buy’.
“New CEO Nawana indicated at the Q2 conference call plans to streamline the operating model to reduce complexity, cut costs and improve the commercial model to accelerate top-line growth; however, we need more clarity on these strategic steps, whether they come with additional restructuring costs and how management is going to address soft performances in segments including Advanced Wound Care, bioactives and AET [Arthroscopic Enabling Technologies]”, HSBC concluded.
Shares in Smith & Nephew were down 8p at 1,273p.
Joint Reconstruction Devices Market to see 3.7 CAGR to 2024 Stryker Zimmer Biomet Smith & Nephew DJO Arthrex DePuy Synthes Companies and 14 other companies profiled: According to new growth analysis report by Global Market Insights Inc. India joint… https://t.co/n82FX9HkV1 pic.twitter.com/lJTrtkQeMD
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