Broker snap: Smiths Group jumps after UBS upgrade

27th Jun 2013 15:41

Smiths Group, the technology business which makes a range of products from contraband detection to medical devices, was a high riser in London on Thursday after UBS upgraded its rating from 'neutral' to 'buy'.Smiths, which last month confirmed it had received an approach for its Medical division, is negotiating a potential sale to CareFusion, according to the Financial Times. The unit could fetch £2.8bn and is likely to attract bidders for other Smiths businesses, UBS said.However, since the initial media reports of a possible sale, the stock has fallen by around 7.0% (ahead of Thursday).Given that a sale would reduce the conglomerate discount that some apply to Smiths' valuation, UBS thinks that the disposal could drive a re-rating, something that is not reflected in current market prices.The shares also are not pricing in a potential rise in interest rates, the broker said, which are positive for Smiths as they would increase the pension discount rate and cut its pension liability and net pension deficit. This would make the sale of a business and distribution of cash to shareholders easier than before."If a deal is done, we would expect the discussion on Smiths to move to potential uses of cash, which we believe is a better than a hypothetical one on potential value of a division in a possible divestment scenario," UBS said.The broker said it sees "sufficient upside" to its 1,400p target price, which was left unchanged on Thursday.The stock was up 4.17% at 1,323p by late-afternoon trading.