Broker tips: Smiths Group, Sports Direct, Aldermore Group

Smiths Group on Friday was given a ratings upgrade by RBC Capital Markets to ‘sector perform’ from ‘underperform’ ahead of the engineer’s strategy statement.

RBC also raised its target price to 1,050p from 900p, saying that shares in Smiths are “less obviously expensive than they were”.

“We view them as sector performers into new management's strategy update (expected alongside first half results provisionally due 16 March), even though the trading environment remains challenging,” RBC analysts Andrew Carter, Wasi Rizvi and Matthew Spurr said in a note.

Weakness in Europe led Goldman Sachs to lower its forecasts and price target for Sports Direct.

Revenues were now expected to grow by just 1% year-on-year, and not 1.5%, as a result of the weaker pattern to European revenues.

The broker also updated its depreciation/amortization and bonus charges on the back of the guidance provided by the company.

Combined, the impact of the above drove a 6.6% reduction in the broker’s forecast for the company’s profits before tax in fiscal year 2016 to £309m.

Nonetheless, the sports goods retailer’s earnings per share were still seen sprinting ahead at a year-on-year clip of 8% to reach 38.4p.

The broker kept its ‘buy’ recommendation on the shares but lowered its target price from 850p to 725p.

Updated proposals from the Basel Committee for standardised credit risk pose another headwind for Aldermore Group, Deutsche Bank said.

The new proposals, published on 10 December, suggested raising risk weights to a minimum of 70% for residential property when repayment is materially linked to cash-flows generated by the property.

That could reduce the lender’s core equity Tier-1 capital position by 230 basis points to 9.7%, analyst David Lock said in a research note sent to clients.

Hence, Lock lowered his target price on the stock from 267p to 240p.