Broker tips: Smith & Nephew, Halma, National Express

Analysts at Citi downgraded their view for shares of medical device maker Smith & Nephew to 'neutral' in anticipation of six to 18 months of difficult trading in the wake of the Covid-19 pandemic.

Among the expected headwinds from the virus was the expected deferment of surgeries as hospitals shifted resources to combating the virus.

There was also limited visibility on the pace of recovery for the same.

"Our calls with US orthopaedic surgeons suggest that the catch-up in deferred procedures will likely take longer than the market expects," Citi said.

Furthermore, delayed product launches and reduced commercial activities meant that the company's turnaround was likely to take longer, which combined with the recent rally in the shares meant the risk-reward on offer was now more balanced.

As a result, the analysts cut their estimates for the outfit's earnings per share by 15-22%, leading to a reduction in their target price from 2250p to 1,700p.

Analysts at Berenberg lowered their target price on hazard detection technology group Halma from 1,860p to 1,710p on Tuesday, flagging some near-term concerns to clients even as they conceded that there were longer-term opportunities on offer.

Berenberg said Halma was one of the "highest-quality and best-run companies" in its coverage but stated that for the first time in a decade, its analysts saw meaningful downside risk to the company's earnings.

The German broker's new full-year 2021 earnings estimates put then 11% below the analyst consensus.

To arrive at its new estimates, Berenbeg had mapped out the locations of every Halma subsidiary to get a sense of "potential supply-side challenges", tracked Covid-19 statements on operating company websites and assessed numerous demand drivers.

"It is clear to us that Halma is by no means immune to the current backdrop. Hence with the shares down by just 7% this year and trading at 34x FY 2021 P/E, we think there is greater upside in some of the more cyclical names in the near term," said Berenberg.

However, the analysts said that to overlook the company's longer-term opportunity, strong balance sheet, potential dividend payout and environmental, social and governance credentials would be "an error".

Berenberg reiterated its 'hold' rating on Halma.

Analysts at Liberum raised their target price on National Express from 400p to 425p on Tuesday, highlighting the firm's ability to remaining earnings and cash flow positive and its extra liquidity headroom.

Liberum stated that National Express' position had "improved" since its last update, with the group still expecting to remain EBITDA and cash flow positive through the current quarter despite most operating markets being in lockdown.

The analysts said there was now greater clarity on how many services were operating and what contractual customers were paying.

"While corporate and local authority customers are generally paying a larger percentage of pre-crisis revenue than we had previously assumed, this does not impact profits materially since we assume the excess over fixed costs is being passed on to staff," said Liberum.

Liberum also pointed to the fact that National Express had secured additional credit facilities, from existing relationship banks and the UK government Covid-19 relief fund.

"It now has £200m of cash in hand, plus £1bn of committed undrawn facilities. We make no material changes to our forecasts, although following the decision to withdraw the previously declared final dividend for 2019 we assume no dividends will be declared for 2020 either," said Liberum, which also stood by its 'buy' rating on the group.