Smiths Group (LSE: SMIN) posted a 9.5% soar in first-half headline working revenue on Tuesday (25 March), however the share price didn’t do a lot in response.

As I write, we’re an increase of simply 1.6% on the day. However Smiths shares have climbed 22% previously 12 months and 81% in 5 years.

Strain to maneuver

The worldwide engineering agency has been beneath stress to think about a transfer to listing on the New York inventory market. US activist investor Engine Capital has been urging that as one doable strategy to maximise shareholder worth. And US-listed shares do typically command larger price-to-earnings (P/E) valuations than their London sector rivals.

In a current interview with Reuters, CEO Roland Carter mentioned: “We by no means say by no means. We’ve been listed for over 110 years on the London Inventory Trade. So… we intend to stay a FTSE 100 firm for now.“

However this new outcomes replace does appear to be heavy on the shareholder worth theme. For example, Carter additionally mentioned: “Our strong cash generation enables us to continue to invest in the business… whilst being able to distribute significant capital to shareholders. We believe this will deliver substantial value creation.”

Strategic change

The corporate reminded us of “strategic actions to unlock significant value announced in January“, adding that “separation processes for Smiths Interconnect and Smiths Detection” are underway. These divisions are concerned in digital part provides and airport baggage screening.

The main focus now could be going to be on “high-performance industrial technology businesses of John Crane and Flex-Tek with significant opportunities to enhance growth, improve the financial profile and deliver strong returns.”

Smiths Group is clearly going by means of a time of transition. And I do suppose this investor activism has presumably acquired the board a bit rattled. However does the inventory actually look undervalued?

Valuation

That working revenue rise got here from a 6.7% improve in income. And on the backside line, it translated into earnings per share (EPS) of 55.5p, up 14%. Once more, that is on a non-standard headline foundation. Assuming it doubles for the complete 12 months, we’d be a P/E of 18 based mostly on the earlier closing share price.

Utilizing the statutory EPS determine of 48.8p would take the P/E to a bit over 20. And that’s largely according to analyst forecasts of 21 for the present 12 months. In addition they see it dropping as little as 16.5 by 2027.

That isn’t clearly low cost in comparison with the long-term FTSE 100 common. However for an organization with sturdy earnings development on the playing cards it might look a bit feeble. Then examine that with typical P/E values for comparable firms listed in New York… and I believe I’m beginning to see what this Engine Capital investor is on about.

What subsequent?

I really feel the uncertainty ensuing from ths ongoing transition might maintain the share price down for a while. Nonetheless, analysts have a consensus price goal of two,300p, up 13%. For traders who perceive the long-term prospects, Smiths absolutely may very well be value contemplating at right this moment’s valuation.