Broker tips: Smith & Nephew, Qinetiq, Boohoo
Analysts at Berenberg raised their target price on medical services firm Smith & Nephew from £18.25 to £18.40 on Friday following the firm's "extensive meet-the-management event" a day earlier.
Berenberg, which reiterated its 'buy' rating on the stock, stated Smith & Nephew had laid out its medium-term margin expectations and committed to regular share buybacks at the event, leading it to take a fresh look at the stock in order to factor the new disclosure into its forecasts.
Overall, Berenberg said its view on S&N remained unchanged, asserting that it was "a much better business" than the market gives it credit for and, if it can deliver on its promises, the analysts said potential upside for the shares was "significant".
Factoring in recent Covid-19 trends and new guidance resulted in 7-9% reductions to the German bank's 2022-2026 adjusted earning per share estimates but Berenberg stated a slight drop in the risk-free rate and a lower equity weighting in its weighted average cost of capital calculation, along with rolling the discounted cash flow forward to 2022, meant its DCF-derived price target increased to £18.40 per share, almost exactly 50% above Thursday's closing price
Qinetiq rallied on Friday after Citi lifted its stance on the shares to 'buy' from 'neutral'.
The bank noted that Qinetiq has lost around £500.0m market cap following a £14.5m writedown on a complex project in its interim results.
"While we accept there remains significant risk for investors on both this contract and potentially the risk management process, we also believe that 1) this is more than priced in and 2) over the next 6-12 months, these risks are likely to be retired/subside, driving a rerating in the shares," it said.
Citi said that it has assumed the write-down was a "one-off problem", but also cut its price target on the shares to 340.0p from 370.0p and increased the risk rating to "high".
Deutsche Bank cut its price target on Boohoo on Friday to 230p from 370p after the fast-fashion retailer warned on full-year profits a day earlier.
"Boohoo hit us with a surprise profit downgrade on the basis of lower sales outside of the UK, largely because of a combination of consumer demand and a relatively unattractive delivery proposition as well as higher costs due to higher returns and freight," DB said.
The bank said freight costs of £17.0m were unusual given the trends have been quite obvious over the last six months and the higher returns rate largely driven by mix was, arguably, to be expected.
"These sales and margin pressures may be temporary but will largely stay in place until conditions normalise," Deutsche said. "It is unclear why the returns rate should not normalise more quickly with product mix so we assume some recovery in margin for FY23E."
The bank cut its FY22 and FY23 adjusted estimates by around 35%. However, given the share price fall predicting some of these concerns, it retained its 'buy' rating on the stock.