Smiths Group boosted by RBC upgrade

Smiths Group got a boost after RBC Capital Markets upgraded the stock to ‘outperform’ from ‘sector perform’ and lifted the price target to 1,225p from 1,050p saying it expects the recent outperformance to continue.

The Canadian bank forecasts 9% growth in earnings per share in full year 2017, driven by a resumption in organic sales growth and currency, with a weaker pound.

“We believe the share's current 14% PE discount versus UK peers will close over time and note the attractive 4% yield,” it said, adding that the yield should be covered by cash flow following the recent pension funding exercise.

RBC highlighted three key risks to its positive stance: a further downturn at John Crane, a stronger pound and a poorly-received acquisition.

“At 1,069p however we consider the risk/reward appealing,” it said.

The bank also said fears over the John Crane division were overdone.

RBC said its full year 2016 estimates look too cautious following the company’s results and the retained outlook statement. Its new forecasts are for FY16 and FY17 EPS of 77.5p and 84.5p respectively, up from 70.1p and 73.4p.

At 1010 GMT, Smiths shares were up 2.2% to 1,100p.