Broker tips: Smith & Nephew, BAE Systems, Boku, Future

(Sharecast News) - Liberum upgraded Smith & Nephew to 'buy' from 'hold' and hiked the price target to 1,410.0p from 1,120.0p, saying it would look to buy on dips given the recent run. "While some may say they can hear the sound of a stable door closing in the distance, we don't think the horse has got that far yet and we are turning buyers on SN," the broker said.

Liberum said it was a holder of the stock previously on the basis that it feared it would take longer than expected for the company to turn around the orthopaedics division and that the targets in the market didn't reflect that risk but stated S&N has largely addressed its concerns.

"To be clear we don't think that SN is out of the woods yet - we remain of the view that the turnaround in orthopaedics will take time and there is clearly plenty of execution risk around delivering the margin improvements - but we feel that SN has now set a much more realistic set of targets and given a lot more granular detail on how it will achieve those targets, which has given us a lot more confidence in its ability to deliver," said Liberum.

"Yes, there is still execution risk, but with the shares still trading on low EBITDA multiples this is more than priced in."

Analysts at Citi reiterated their 'buy' recommendation for shares of BAE Systems as they hiked their target price on the stock, arguing that the engineer's guidance was "somewhat conservative".

Citi believes BAE's 2023 guidance for 3-5% sales growth, a 4-6% jump in earnings before interest and taxes and a 5-7% increase in earnings per share was "only the start".

The analysts stated the bottom end of those ranges was "somewhat conservative" with the mid-to-high end more likely and also noted that current foreign exchange rates implied a 3% tailwind which would boost growth by another 150 basis points.

On top of that, the rate of growth in the company's organic sales was seen topping 5% in 2024 because typically increases in defence budgets translated into sales growth 1-2 years afterwards.

"We have therefore increased our near-term forecasts slightly, but the cumulative impact of greater growth rates increases our longer-term forecasts more significantly, boosting our [net present value]-derived target price by 10% to 1,146.0p."

Analysts at Berenberg raised their target price on mobile payments company Boku from 185.0p to 210.0p on Wednesday, stating the group's recent capital markets day had confirmed its investment case.

Berenberg said Boku's capital markets day on 22 February reaffirmed its mid-term investment case and answered several key investor questions, leading it to also reiterated its 'buy' rating on the stock.

Specifically, the analysts said Boku confirmed that its blended take rate will increase as it accelerates into local payment methods, its investment phase was ending and positive operational leverage will return, that it expects to double revenue in the mid-term, and that it was targeting a roughly 50% profit margin in the mid-term.

While Berenberg said it had "consistently extolled these aspects" of Boku's investment case in recent times, it views management's commitment to mid-term financial targets as "confirmation" of its thesis.

"Considering investors have long awaited clarification as to the timing of Boku's investment phase and when positive operational leverage will return, we think that this announcement should be taken very positively by the market," said the German bank. "Boku is a must-own stock in the UK mid-cap TMT sector, in our view."

Analysts at Canaccord Genuity initiated coverage of Future with a 'sell' recommendation and 1,153.0p target price on Wednesday, stating "all good things must come to an end".

Canaccord Genuity stated the past decade's stock market darling was moving into a more "challenging" period, characterised by lower structural growth tailwinds, weaker traffic to key websites and a reduced pace of economic growth, and said it was also anticipating a move to new categories and fewer mergers and acquisitions.

Furthermore, the Canadian bank said artificial Intelligence might remove the moat around the business, hitting prices and hence the outfit's valuation.

Canaccord added that its estimates for the media outfit's pre-tax profits between 2023 and 2025 were 7-13% below consensus.