Smiths Group given a boost as JP Morgan reiterates 'overweight'

JP Morgan said the technology company's 2016 financial year ended on a “very positive note”, with the trading update on 9 August indicating that full year operating profit was well ahead of consensus expectations of £473m, although below the 2015 level of £511m.

“The full-year (July year-end) results on 28 September are to be accompanied by the presentation of the new management team’s strategic vision for the group and we expect this, together with good results for 2016, to provide a further stimulus for the shares to continue to outperform the sector,” JP Morgan said.

“With 18% upside to our price target and the prospect of the positive news flow continuing, we are reiterating our ‘overweight’ recommendation.”

JP Morgan raised its 2016 revenue and earnings per share forecast by 2% to £2.93bn and 81.7p respectively, given the movement in exchange rates.

The broker said Smiths is trading at a “substantial discount” to the sector in terms of price-earnings ratio and enterprise value/ earnings before interest, tax and amortisation multiples “despite the prospect of delivering an operating profit margin more than 400bps above the average for our universe”.

Shares rose 1.22% to 1,356.31p at 1054 BST.