Broker tips: British American Tobacco, DS Smith, Electrocomponents, Halma, Diploma

While trimming its estimates on currency and more conservative US assumptions due to risks associated to with the FDA's ban on menthol cigarettes, Piper Jaffray maintained its £30 target on the firm, noting that much of the menthol related risks appeared priced in.

"While BAT has greater menthol exposure than its peers, risk from a potential ban already appears priced in."

Piper Jaffray's analysts do not expect any operational impact "for years and years", as the rule-making process itself is lengthy and likely to be followed by "5-10 or more" years of legal challenges.

While many investors have quailed at potential risks to dividend growth - the analysts do not see it, adding that BAT's cash flows appeared to be at no risk in any way that would impact its dividend.

"We have had questions from investors on risk to the dividend, reflecting concerns we do not share."

Piper Jaffray also noted that, while BAT's glo patent litigation in Japan was "still a risk", it conceded that it was perhaps less of one than it had initially believed.

DS Smith shares have underperformed peers over the past 12 months and after the paper and packaging maker completed its European acquisition, JPMorgan Cazenove believes the de-rating has been "overdone".

The Cazenove analysts reinstate their 'overweight' rating following completion of the €1.8bn acquisition of Europac and affixed a 400p target price, down from 600p before the period of restriction during the acquisition.

Include the impact of the acquisition and associated rights issue in its estimates, the 2020 adjusted operating profit forecast increases 26% to £769m and adjusted earnings per share by 5% to 41.5p, which includes the discontinued Plastics operations.

The shares have fallen 35% since the end of August, a de-rating that puts the shares on an EV/EBITDA ratio of 6.1 times one-year out, down from an average of 8.3x over the past three years, which analysts said was likely to be "reflecting paper price trends and downward revisions to GDP growth in key end-markets".

"It has underperformed most of its major peers in paper and packaging over the past 12 months, despite the protection its ‘short paper’ operating model provides to margins," they added.

With a 2020 free cash flow yield of 10%, Caz believe the de-rating "has been overdone".

Berenberg downgraded its stance on a number of UK industrial stocks on Tuesday, but lifted its recommendation on Electrocomponents, mostly on valuation grounds.

The bank upped Electrocomponents to 'buy' from 'hold' but cut the price target to 650p from 770p, arguing that the 30% de-rating since October 2018 is overdone.

"We expect the company to continue growing organically (albeit at a slower rate) with market share gains as the industry shifts online, margins to expand driven by self-help measures and its strong balance sheet to underpin further opportunities. At an overly pessimistic valuation of 13.5x FY 2020 earnings, we feel it is a good time to revisit the story."

It downgraded Halma to 'hold' from 'buy', reducing the target price to 1,560p from 1,570p, purely on valuation grounds.

"While we see upside risk to earnings, we think shares are more likely to grow into its multiple rather than see any expansion in the near term," Berenberg said. "Our long-term thesis remains unchanged, but we advise investors to await a better entry point and believe there is better value found elsewhere at present."

Diploma was also cut to 'hold' from 'buy' and the price target trimmed to 1,350p from 1,435p on valuation and concerns about the impact of a slowing US economy.

Diploma was one of the bank's top picks last year. However, it said that given its view that global growth is set to moderate rather than plunge, it now reckons the valuation discrepancy between the high-quality defensives and the more cyclical names under its coverage is too wide.