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Smiths Group shares are strongest among the this morning as investors digest news that the group is acquiring US detection company Morpho from French Aerospace and Defense giant Safran for $710m. While news of an acquisition tends to dent the acquirer’s share price (spending cash/diluting shareholders by issuing shares, risk of overpaying, integration risk, etc) the fact that this addition to the SMIN stable can be merged with its existing detection business is being well received. This is down to it adding almost 50% to division revenues (Morpho $320m in 2015 vs SMIN Detection $650m) and be margin enhancing from the off (2015 op margin 18% vs SMIN Detection 11.9%). In addition, recent terror events only go to heighten the need for products such as airport scanners and frontline verification devices at sensitive sites like sports venues and nuclear facilities. Shares trading fresh 2016 highs above 1150p, at levels last seen in mid-August. Bulls eyeing 12-month highs 1225p.
Mike van Dulken, Head of Research, 21 April
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