Broker tips: Ashmore, Smith & Nephew, AstraZeneca

JPMorgan Cazenove nudged down its price target on Ashmore from 185.0p to 184.0p on Monday and reiterated its 'underweight' rating as it argued that the re-rating has gone too far.

The bank noted that Ashmore's shares had rebounded by around 8% in the past month, driven by better market performance and a slower pace of net outflows in Q4 23.

It said that even though fiscal H1 24 results beat what seemed to it like a "stale" consensus, the H1 24 adjusted EBITDA was 10% below its expectations. As a result, the bank cut its adjusted earnings per share estimates by around 9% on average for FY24-27E.

JPM said that even though it forecasts a gradual net flow recovery, it does not expect a return to double-digit $bn net inflows.

"At 18.9x 2025E price-to-earnings (or 12.7x excluding excess capital) Ashmore is the most expensive stock within our traditional asset managers coverage," it said. "We believe the circa 25% multiple rerating since October 2023 has gone too far, and reiterate our underweight recommendation."

RBC Capital Markets reiterated its 'outperform' rating and 1,500.0p target price on Smith & Nephew ahead of the medical devices giant's fourth-quarter results later this month, saying it sees upside risk to current estimates.

Strong results from sector peers like Johnson & Johnson, Stryker and Zimmer Biomet suggest that the global hip and knee market expanded by a combined 7.1% in the fourth quarter, as surgery levels increased on the back of a "a return to normal phasing and secular growth in demand", RBC said.

"If Smith & Nephew's Ortho revenues have grown in line with the market, this implies up to 1% upside to Q4 group sales vs RBCe/consensus, or more if it takes share," the broker said ahead of the group's scheduled results on 27 February.

Smith & Nephew's shares have underperformed the wider sector by 10% so far in 2024, which could reflect "nervousness" around hitting margin guidance, RBC said. So the reaction to a strong fourth-quarter result could be strong.

"We also remain bullish on SN in the longer term, and continue to believe its valuation vs peers does not account for its competitive positioning or growth outlook."

Barclays has kept an 'overweight' position on AstraZeneca despite the biopharma group's disappointing annual results last week, saying that the stock's recent underperformance provides an attractive entry point for investors.

Shares in AstraZeneca dropped on Thursday after fourth-quarter core earnings per share rose by just 7% year-on-year to $1.45, which was a 3% miss against consensus forecasts.

The stock, down nearly 2% on Monday, has now fallen 8.8% since the results were released and now stands at a 52-week low of 9,564.70p.

"The last time AZN moved that much on a print (3Q21), the magnitude of the EPS miss/subsequent downgrades was far greater," Barclays said.

As a result of the fourth-quarter numbers, Barclays trimmed its 2024 EPS forecasts by 2%. However, the bank still sees significant upside with a price target of 12,500.0p.

"We think this presents a compelling entry point for a best-in-class company," Barclays said.