Smith & Nephew: Finally Turning a Corner?

In 2024 I took a hold stance on Smith & Nephew. From a share price of £19 in 2019 to a mere £10.43 today, shareholders have been frustrated for a long time with little to keep us excited.

The rationale for Smith & Nephew is simple: it's a defensive play based on the premise there will always be demand for medical technologies. Smith & Nephew has tried to meet this demand for nearly 170 years, however, a disappointing trend in the past few years has been hallmarked by a declining market share for hip and knee implants, with worse declines in their 'trauma and extremities' offering. The company's European revenue has fallen by around 10% in recent years, while its earnings per share (EPS) also dwindle, but global headwinds cannot be the only factor to blame. Smith and Nephew must shoulder its responsibility for long-term inadequacies. For example, their mere 6% of revenue spent on R&D as per the 2023 annual report adds to one's pessimism.

A grim half-decade

After last year's full-year report, investors felt bruised by the lack of material progress, convincing them about the long-run case for Smith & Nephew was going to take a lot. One year on, Smith & Nephew's annual report released today suggests the new CEO and CFO's plan is working, with CEO Deepak Nath heralding "solid progress in fixing the foundations" amongst a rise in Q4'24 revenues of 8.3% - not bad at all. Also impressive is EPS growth of 56.3% to 47.2¢ per share - last year the company achieved 1.3% to 30.2¢ per share.

The headline figures

Spending on R&D continued to decrease, and year-on-year revenue growth has fallen. Nevertheless, year-on-year trading profit rose a comfortable 8.2% to a larger than anticipated $1.05 billion. This is the story for many of the figures, that Smith & Nephew has outperformed expectations; given its track record, these expectations may have been on the floor. Either way, with improving margins and the implementation of a 12-point plan to revitalise the company, perhaps investors holding can start to feel more optimistic about their returns. As mentioned, however, convincing investors of the long-run case still requires more, consistent, results.