Broker tips: Intu Properties, Smith&Nephew

Analysts at HSBC slashed their target price on stock of Intu Properties, pointing to the two failed takeovers of the shopping centre operator and forced asset sales to reduce its gearing as justification for saying that "a rationale for investing is hard to establish".

In a research note sent to clients, Stephen Bramley-Jackson, Thomas Martin and Stephanie Dossmann cut their target from 236p to 136p, although their recommendation was kept at 'hold', in part due to the possibility that another potential suitor might yet materialise.

Indeed, one of those offers had been pulled by the offeror's own shareholders, they explained, who had gotten 'cold feet' ahead of Brexit.

Together with its "high" balance sheet gearing and committed capital expenditures, that left Intu backed into a corner, forcing it to cut its dividend payout in order to free the working capital it needed.

"The need for asset sales into a market where there is little, to no liquidity for large shopping centre assets (i.e., INTU’s assets) and as such the only means to harness working capital is to ‘substantially reduce’ the dividend payout," they said.

JPMorgan Cazenove cut its stance on Smith & Nephew to ‘neutral’ from ‘overweight’ on Wednesday, reducing the target price to 1,477p from 1,487p following the stock’s outperformance.

JPM noted that the shares significantly outperformed last year, up 12% in absolute terms, outperforming the FTSE by 25 percentage points and the European Medtech sector by 22 percentage points.

This in part reflected the low starting point for the shares at the beginning of the year, but after a slow start following a first-quarter profit warning, growth improved in Q3, with the rebound in hips and improved margin guidance being perceived as early progress driven by the new CEO, JPM said.

As a result, it now reckons the risk-reward from here is more balanced, with valuation less compelling and material upside likely requiring earnings upgrades.