Berenberg raises target price on Smith & Nephew

Analysts at Berenberg slightly lowered their target price on medical equipment manufacturer Smith & Nephew from £21.65 to £21.50 on Friday, stating Covid-19 had raised questions regarding the group's future.

Berenberg had questioned how far would revenues would fall as a result of the coronavirus pandemic, how quickly they could recover once lockdown measures began to ease and what "the new normal" would look like for S&N.

The German bank said its first question was "definitively answered" by S&N's 47% decline in revenue seen in April, while the second was confirmed by June when revenues were down just 12% year-on-year.

However, Berenberg said its third question remained unanswered, but as a relatively economically insensitive business, it continues to believe revenues and profits will return to pre-Covid-19 levels in 2021, assuming the pandemic is brought under control that is.

"Thereafter, we expect improved revenue growth, margin expansion, leverage over financial expenses and efficient capital deployment to drive an 11.6% 2021-2025E adjusted earnings per share compound annual growth rate," said the analysts.

At a 2021 price-to-earnings ratio of 18.3 times underlying earnings, the analysts said this growth potential was not reflected in the shares, leaving it with just one conclusion on the stock - 'buy'.