Q4 22: encouraging growth outlook makes up for slower margin trajectory

Smith & Nephew released largely in line Q4/FY 22 numbers but slashed its mid-term margin outlook to reflect the macro-economic uncertainty. Q4/FY growth was attributable to a broad-based recovery in Orthopaedics supporting the ex-orthopaedics momentum. The performance was overshadowed by the encouraging growth outlook – for FY23 as well as for the mid-term – which was cheered by investors, who ignored the softer than expected margin outlook, sending the stock 4.2% higher in trade.

Q3 22: the first signs of a recovery?

Smith & Nephew announced a Q3 trading update in line with the consensus but slightly soft versus our own estimates, with revenue growth of 4.8% on an underlying basis as all segments registered an acceleration in their growth rates vs Q2/H1 22. While supply chain bottlenecks and staff shortages remained constraints, the former seem to be receding. The FY 22 outlook (4-5% UL growth and a 17.5% trading profit margin) was unchanged. We will trim our FY 22 estimates by low single digits to factor

Q2 21: Internal problems amplify the external headwinds

Smith & Nephew reported mostly in-line Q2 22 numbers, missing the top-line estimates (-0.6%) but beating on the trading profit (+0.5%), albeit marginally. The Q2 performance was overshadowed by a 100bp margin downgrade for FY22 (-50bps Y-o-Y vs +50bps previously), which sent the stock ~9% lower in the session following the update. The reiteration of the top-line growth outlook of 4-5% was no help either. We will cut our estimates, largely to reflect the soft margin guidance.

Strong Q1 22 as procedure volumes recover

Smith & Nephew reported better than expected Q1 22 sales, up 5.9% on an underlying basis, driven by broad-based momentum in sports medicine and ENT (+8.6%) and advanced wound management (+8%). Regionally, growth was led by emerging markets (+14.3%) supported by established markets (+4.1%). The FY 22 outlook of 4-5% top-line growth and 50bps trading margin expansion was unchanged. We will marginally upgrade our estimates to reflect the strong Q1 momentum.

Future looks bright in spite of marginal Q4 21 miss

Smith & Nephew reported a marginal miss in Q4/FY21 with expected growth trends. The board recommended a final dividend of 23.1c/share and proposed an annual share buy-back programme (worth $250-300m in 2022). FY 22 growth is expected to be 4-5% with a 50bp expansion in the trading margin vs 2021. In addition, the firm announced a change in leadership with Deepak Nath replacing Roland Diggelmann as CEO from 1 April 2021. We will trim our expectations.

Q3 21: Orthopaedics weakness arrests momentum

Smith & Nephew reported a soft Q3 21 as sales growth of 2.3% missed estimates. Momentum in wound management (+10.9%) and sports medicine & ENT (+6.5%) was more than offset by the decline in Orthopaedics (-5.9%), which was hurt by the spread of the Delta variant and supply-chain issues. The firm now expects FY21 growth at the lower end of its 10-13% range with a trading profit margin at 18-19%. Following the soft showing, we will trim our estimates and target price.

Q2 21: Marginal beat not good enough

Smith & Nephew reported consensus beating Q2 21 sales growth of 40.3%, thanks to a strong recovery in Orthopaedics (+43.4%) and ‘sports medicine & ENT’ (+50.9%). Regionally, growth was driven by the established markets (+46.8%). For H1, revenue growth came in at 27.8% with a trading margin of 17.6% (+920bps, 40bps ahead of consensus). Guidance of 10%-13% top-line growth and an 18%-19% trading margin was re-iterated. Following the broadly in-line performance, we do not expect any significant ch

Promising start to FY21

Smith & Nephew reported consensus-beating Q1 21 sales growth of 6.2%, driven by ‘sports medicine & ENT’ (+10.4%) and ‘advanced wound management’ (+9.3%). Regionally, growth was driven by emerging markets (+21.8%) and the US (+7.1%), which made up for the 1.8% decline in other established markets. The firm also reinstated the outlook and now expects FY21 underlying growth of 10-13% with a trading profit margin of 18-19%. We will raise our estimates and target price, following the strong perform

Muted end to FY20, promising FY21 pipeline

Smith & Nephew reported an in line Q4/FY20 top line (-7.1%/-12.1%). The Q4 decline was attributable to other reconstruction (-45.6%), knees (-16.2%) and ENT (-33.1%), while Hips surprised with a flattish performance (-0.5%) in a difficult operating environment. The firm missed profit estimates, as trading profit fell 42% (margin -7.8pp to 15%). The dividend of 37.5c/share was unchanged from the prior year. FY21 sales/profit outlook remains suspended due to COVID-19 uncertainties. We will lower

Q2 20, a trough left behind

Smith & Nephew reported big declines in Q2 20 with sales down 29.3% on an underlying basis – driven by broad-based declines – and the H1 20 trading profit margin contracting by 12.9pp (to 8.5%). However, the company announced an interim dividend of $0.144 per share (flat). FY 20 guidance remains withdrawn, thanks to the persistent pandemic uncertainty. In spite of the soft profit numbers, we will be raising our estimates to account for the faster than expected recovery in elective surgeries.

Q1 20: COVID-19 pain set to peak in Q2?

Smith & Nephew saw Q1 20 revenue decline by 7.6%, on an underlying basis – driven by broad-based weakness, as the COVID-19 outbreak hurt elective procedure volumes. With April revenue down 47%, there is more pain ahead before recovery. However, with procedure volumes returning in key markets, a recovery in H2 looks realistic. Following the Q1 update, we do not expect any significant change in estimates as the Q1 numbers as well as April trading were only marginally better than our estimates.

Good finish to FY 19; on-track for outperformance in 2020?

Smith & Nephew reported good Q4/FY 19 numbers – trumping estimates. Q4/FY 19 sales were up 5.6%/4.4% on an underlying basis – driven by broad-based momentum. For FY19, the trading profit margin came in at 22.8%. The company also announced a final dividend of $0.231 per share (+4%). Management expects FY 20 revenue growth of 3.5-4.5% with a trading margin at or slightly above the FY 19 level (22.8%). Following the good performance, we will be raising our estimates and target price.

Sports medicine leads a good Q3 showing

Smith & Nephew reported Q3 19 top-line growth of 4% on an underlying basis – driven by Sports Medicine Joint Repair (+12.2%), Advanced Wound Devices (+15.4%), Knee Implants (+4.6%) and ENT (+5.3%). This was partly offset by a decline in Advanced Wound care (-1.8%). Management upgraded FY 19 revenue expectations to 3.5-4.5% (vs 3-4% earlier), while lowering the trading margin expectation to 22.8% (vs 22.8-23.2%). Following the good Q3, we will be raising our estimates and target price.

Sports medicine, emerging markets lift Q2 performance

Smith & Nephew reported a strong set of Q2 19 numbers. Sales were up 3.5% on an underlying basis, driven by Sports Medicine Joint Repair, Knee and Advanced Wound Devices. Regionally, emerging markets led the growth. H1 19 trading profit came in at $532m, with the associated margin at 21.4%. The company announced an interim dividend of 14.4c per share. Management raised FY 19 revenue guidance to 3-4%. Following the strong Q2, we will be raising our estimates.

SPA Healthcare - Morning Comment

Smith & Nephew (LSE:SN) acquires optical tracking technology company | Polarean Imaging (POLX): Trial update | Venn Life Science (VENN.L): Proposed Placing

Reassurance on RCF funding and FCF in Q1

VLG has issued a reassuring statement regarding its RCF/funding. Liquidity is sufficient and stable, and no impact or risk to the business is expected to arise from events at Silicon Valley Bank, one of the lenders under its RCF. The Board is confident of being able to refinance that portion of the RCF either at or before renewal in Jun24. In addition, VLG reports a strong start to the year, including good cash generation following the strong final quarter of FY22.

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21 March 2023 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objectiv

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14 March 2023 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objectiv

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20 March 2023 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objectiv

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