4th Jul 2024 11:51
(Alliance News) - A jump in Smith & Nephew PLC's share price suggests the market thinks news an activist investor has snapped up a stake is "no bad thing", an analyst on Thursday said.
On Thursday, the London-based medical technology company disclosed Cevian, which holds its headquarters in Stockholm, has bought a stake of just over 5.0%.
Shares in Smith & Nephew jumped 8.0% to 1,065.50 pence late Thursday morning. The wider FTSE 100 was up 0.7%.
"The positive share price reaction to Cevian taking a position in Smith & Nephew demonstrates the market thinks an outside catalyst for a shake-up of the business would be no bad thing," said AJ Bell Investment Director Russ Mould.
"Activist investors often circle a struggling company so the news Sweden’s Cevian has taken a stake in medical devices firm Smith & Nephew shouldn’t come as a huge surprise," he added.
Mould pointed out Cevian has previously taken positions in UBS Group AG, Vodafone Group PLC and Aviva PLC in an attempt to force change.
"The case for doing so at Smith & Nephew is presented by a near 40% decline in the share price over the last five years," he noted.
Mould explained Smith & Nephew was severely affected by the pandemic as elective procedures like hip and knee replacements were cancelled, reducing demand for its orthopaedic products. Lockdown also hit the company’s supply chain, as it did for many businesses.
"However, its post-Covid recovery has been faltering and an improvement plan announced in 2022 has not yet resulted in a material improvement in earnings and profitability. This hasn’t been helped by a weak showing in the US market."
Mould thinks Cevian is likely to hold management’s "feet to the fire" and may look for more ambitious targets than set out under the existing improvement plan.
"It could also push for a rationalisation of the company’s portfolio, which encompasses sports medicine and wound care alongside orthopaedics," he suggested.
By Jeremy Cutler, Alliance News reporter
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