On the whole analysts at Credit Suisse have a favorable opinion of the final results posted today by Smiths Group. They thus describe the company´s second half performance as "solid," while highlighting the 10% top line growth and 19.2% margin achieved.

Nevertheless, they also take note of the company´s references to the ongoing macro uncertainty and the pressure on government spending, which led to some caution on the outlook for fiscal year 2013 (in particular for the second half of that year) and as a result, trim their forecasts for the next two fiscal years (2013 and 2014) by 2% an 1%.

Credit Suisse also calls attention to the fact that the "focus of the group is now shifting towards generating top line growth, primarily through 1) investment in new products and 2) expansion in growth markets."

That now that the main restructuring program has been completed.

As regards the company´s valuation, they estimate that, on their new 2013 calendarised estimates, Smiths is trading on a price-to-earnings multiple of 10.5x and EV/EBITA of 9.2x, on average a circa 10% discount to the UK Industrial peer group.

As well, they point out that their reverse-DCF analysis as well as the estimated 2013 EV/Sales multiple of 1.76x suggests the stock is currently discounting a through-cycle operating margin of circa 17-17.5% for Smiths, which they see as conservative in the light of their future margin forecasts of approximately 19%.

Credit Suisse analysts have reiterated their outperform recommendation on shares of Smiths, as well as their 1,200p price target.

AB

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