Broker snap: S&N undervalued by historic standards

6th May 2010 13:14

First quarter results from medical devices firm Smith & Nephew were ahead of expectations and Killik & Co thinks there is more to come from a company it describes as a 'world leader' in its field."We believe the long-term outlook for the group is positive. Its markets are expected to generate mid-single digit volume growth, driven by ageing demographics, more-active lifestyles, the increase of diseases, such as obesity and diabetes, and growth in emerging markets. At present, emerging markets account for less than 10% of group sales, but population growth and a growing middle class provide plenty of potential for the group's well respected products," Jonathan Jackson, Head of Equities at Killik said."The introduction of new products is a key driver of growth, with the focus on incremental improvements to existing products. In a consolidating market, organic growth has been supplemented by acquisitions, and with its strong balance sheet (net debt of $783m) the group is well placed to take advantage of further opportunities. In addition, although the group's enterprise value is £6.5bn, it is not itself immune as a target in the ongoing process of M&A in the sector," Jackson adds.Trading on a multiple of 12.9 times projected earnings per share for 2011 the stock is undervalued both by historic standards and in relation to its global peer group, the broker argues.