Broker tips: Tullow Oil, Smith & Nephew, Johnson Matthey, Cairn Energy

Westhouse Securities has maintained a 'buy' recommendation on Tullow after the oil producer and explorer delivered a positive update on its appraisal programme in Kenya.

"Tullow is now trading at an unprecedented 36% discount to our core net asset value [forecast] despite having high margin production in West Africa which we expect to grow strongly in the coming 18-24 months," the broker said. Westhouse has a 600p target price for the stock, suggesting substantial upside from Wednesday's price of around 322.5p, up 0.2% on the day.

The M&A premium factored into the price of Smith & Nephew (S&N) will likely start to unwind, according to JPMorgan Cazenove, which said that a takeover by US medical devices peer Stryker is now "unlikely".

Last week's announcement of a $2bn share buyback by Stryker suggests that the US group has taken potential large acquisitions off the table, JPMorgan said. "We have been surprised at the limited impact that such an announcement has had on S&N's share price. We expect some further unwinding of the premium as investor hopes for any possible Stryker-S&N union fade."

Exane BNP Paribas sees lower medium-term structural growth and growing risks at Johnson Matthey, as it lowered its stance on the chemicals outfit from 'outperform' to 'neutral'.

The broker, which cut its target price by 7% to 3,300p, said that growth has "exhausted" at the company, which specialises in emission control, metal refining and industrial technologies markets.

News that Cairn Energy has been handed a $1.6bn tax bill in India has prompted Jefferies to cut its rating on the oil and gas stock from 'buy' to 'hold'.

The broker, which also lowered its target price from 220p to 172p, said it was "blindsided" by the developments. While Cairn Energy said it would contest the bill, Jefferies said that whatever the outcome, a "new overhang moves in" for the company.