Broker tips: Smith and Nephew, Compass, Hansteen

28th Mar 2012 11:18

Investec has this morning downgraded its rating for medical devices maker Smith and Nephew from buy to hold and cut the target price slightly from 663p to 660p."We move our recommendation from buy to hold as, whilst we think the business is making good progress, the combination of what looks like a relatively full valuation, a likely dull set of Q1 results and the longer-term nature of a lot of the upside drivers, suggests that the scope for short-term outperformance is limited," said analyst Sebastian Jantet.He said that improving volumes in the US and acquisitions could potentially provide some upside to the stock, "but the timing of these remains hard to call."Following yesterday's trading update from contract caterer Compass Group, Nomura has reiterated its buy rating and 800p target price for the stock, saying that it remains its preference in the European leisure sector."CPG remains one of our top sector picks because of structural growth in the catering and support services segments, free cash flow strength and medium-term potential for margin upside," the broker said.Margins were flat in the first half, but organic revenues increased by around 5%. "We are not concerned by the apparent absence of margin improvement as this reflects one-off factors," Nomura said.Jefferies has kept its hold recommendation and 80p target price for property investor Hansteen following the group's full-year results, saying that while it continues to make progress, the net asset value (NAV) was disappointing.NAV came in at 82p, some 6% below Jefferies' 87p estimate due to a worse-than-expected capital decline of £19.3m. This meant that pre-tax profit slumped from £33.2m to £8.9m.The cash on the balance sheet at the end of the year was £162.5m and the broker says, assuming a 50% loan-to-value ratio, gives the group around £300m of acquisition firepower. BC