Smiths has released positive interim results. Key highlights include: better than expected profitability, good cash generation and a relatively positive outlook statement. Smiths Medical is on track for separation. Interim results – highlights resilience Half-year (ex-Medical) revenues decreased by 7% (-5% underlying) to £1,150m (INVe / consensus £1,150m). The adjusted operating margin contracted 40bps to 14.6% resulting in operating profit of £166m, down 11% (-6% underlying). Group EPS fell by 9% to 42.9p. The dividend has increased by 6% to 11.7p. Cash conversion was 129% and net debt was £1,075m, representing a net debt/EBITDA ratio of 1.7x. Outlook – positive FY expectations intact Trends are improving and we expect this to continue in its second half with restructuring benefits helping improved profitability. Management is confident of meeting FY market expectations and its confidence underpins the dividend increase. Medical is still expected to be separated by its Q4’21 (Jul y/e). Investment case – recovery and Medical separation value There are visible improvements across the Group and the separation of Smiths Medical should create value. Clearly trading has been impacted by Covid-19, but it has shown resilience and the Medical separation has been delayed. On balance, we believe the investment case remains intact, given that (1) Smiths Medical should realise value, (2) the business has traded robustly given some of its medical and infrastructure critical products, and (3) John Crane (a high margin and aftermarket driven business) is nearly half of group profits. On our forecasts, the shares are trading on a FY22E PE of 14.9x and EV/EBITDA of 12.6x and provide a 3% dividend yield. There is a results presentation at 9am.