Broker tips: Smith & Nephew, Devolver Digital, Made.com

(Sharecast News) - RBC Capital Markets initiated coverage of medical products manufacturer Smith & Nephew at 'outperform' on Wednesday with a 1,700.0p price target. The Canadian bank stated the market was not pricing in the potential acceleration in both revenue growth and margins from the company's strong positioning in high-growth sports medicine and ASCs, as well as its differentiated CORI surgical robot and new cementless knee portfolio.

In RBC's view, investors were also overlooking S&N's operational improvement programme.

"This provides an opportunity to build a position in a major med-tech company at a historically low entry point," said the analysts.

Analysts at Berenberg initiated coverage on video games publisher Devolver Digital with a 'hold' rating and 180.0p target price on Wednesday, stating there appeared to be limited upside potential for the stock in the short- to medium-term.

Berenberg said Devolver's strong new title pipeline, increasing share of first-party IP and a growing back catalogue will drive one of the highest near-term underlying earnings growth outlooks in the sector.

However, the German bank also noted that Devolver trades at a 35% premium to its nearest peers, making it "one of the most expensive names in the sector".

"While we believe the quality of the business model and growth outlook warrants this premium, in our view it does limit upside potential at least in the short to medium term," said Berenberg.

The analysts stated they expect to see a "substantial margin expansion" from the group, stating it was plausible that Devolver's gross margin will trend towards 50% as its share of own IP grows which, given the high operating leverage, would drive meaningful upside to our margin expectations.

Also at Berenberg, analysts slashed their target price on retailer Made.com from 165.0p to 90.0p on Wednesday following the firm's 2022 guidance downgrade.

Berenberg said Made.com delivered full-year 2021 results in line with expectations communicated by the group at the time of its trading update in January and, with the stock down roughly 46% year-to-date, the current year guidance downgrade was clearly anticipated by the market.

However, the German bank stated Made's top-line guidance for 15-25% gross sales growth and 25-35% net revenue growth implied no underlying market tailwind from the online channel shift or underlying market growth in home furnishing demand, with growth market-share-driven.

"Made's growth may be challenging in a more constrained economic environment; furthermore, if store-based peers improve their own online propositions, competition from these omnichannel peers will increase. Nevertheless, Made's own-brand and curated product proposition provides differentiation. We forecast 23% net revenue growth in FY 2022E," said Berenberg, which reiterated its 'hold' rating on the stock.

Looking forward, the analysts highlighted a "challenging consumer environment" that may make achieving its 2022 expectations difficult. Moreover, Berenberg said the reaffirmed 2025 financial targets remained "ambitious" in its view.