Smith & Nephew plc: Shining Bright In A Greying World

Smith & Nephew plc (LON:SN) can benefit from an ageing population.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Ageing populations are a fact of life not just in developed nations like the UK, but also in emerging economies such as China. As such, they make for a great long-term theme for investors to tap into. More elderly people means more demand for healthcare, which in turn means more demand for the tools of the trade such as drugs and medical equipment.

One company that looks well placed to capitalise on this trend is Smith & Nephew (LSE: SN) (NYSE: SNN.US), which is best-known for its artificial joints and orthopaedics business, but also has market-leading positions in endoscopy and advanced wound management. Emerging markets currently make a relatively small contribution to the business, but are growing at double-digit rates. For example, in China, where the group has first-mover advantage in certain markets, it saw revenues grow by more than 30% in 2013. With the firm also investing in other growth markets like Turkey and the Middle-East, the prospects for long-term growth look good.

A game-changing acquisition…

Smith & Nephew recently announced the acquisition of ArthroCare, a US-based company which makes products used in arthroscopic surgery on shoulders and knees, for $1.7 billion in cash. This looks like a great deal for Smith & Nephew for several reasons. Given that ArthroCare derives 68% of its sales in the Americas, it boosts Smith & Nephew’s presence in a region where it has traditionally been seen as weak.

In addition to this, the acquisition brings with it some exciting new technologies. For example, ArthroCare has developed a technology called coblation that utilises high-frequency energy and natural saline (salt water) to dissolve target tissue and preserve healthy tissue. Its oblation products are used in minimally invasive orthopaedic surgeries involving shoulders, knees and hips, as well as the ear, nose and throat, a new area for Smith & Nephew.

A healthy price tag…

Smith & Nephew’s 2013 results saw the firm report a trading profit of $987 million, a 5% increase on last year, on revenues up 4% at $4.35 billion. Underlying earnings per share of 76.9 cents (c.46.6p) means the shares are currently valued at more than 20x historic earnings, with a 1.7% yield. While those metrics are much pricier than the UK market as whole, I believe this reflects the quality of the business and its growth prospects.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James does not own shares in Smith & Nephew. The Motley Fool owns shares in Smith & Nephew.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »