Broker tips: Tesco, Smith & Nephew, Pennon, Poundland

4th Jun 2014 12:24

Investors gave a mixed reaction to results from Tesco on Wednesday as a less-than-expected fall in first-quarter like-for-like (LFL) sales failed to stop the shares sinking into the red by mid-morning.Panmure Gordon Market Commentator David Buik said that despite coming in ahead of forecasts the 3.7% LFL decline "by any standards, represents an unacceptable performance". Meanwhile, Richard Hunter, Head of Equities at Hargreaves Lansdown Stockbrokers, said that investors are trying to figure out whether Tesco is "showing glimpses of revival given its turnaround plan, or whether it is past its sell by date".Shares in Smith & Nephew (S&N) were making gains on Wednesday after JPMorgan Cazenove said that M&A speculation could support the stock in the near term after a 19% year-to-date rise"[...] Stryker's comments are likely to leave continuing risk-arbitrage interest in the name which we think should provide some support over the next three-six months."The prospect of another wave of water industry takeovers should tempt investors to buy shares in South West Water (SWW) owner Pennon, says Deutsche Bank.Pennon and other listed UK water stocks offer attractive returns compared to low-risk UK and US regulated peers such as National Grid, the German broker said. "We also think there is the potential for more bids once the 2014 review completes, which will set prices through to 2020," Deutsche added.Investors should start buying cut-price retailer Poundland again after a sell-off caused by competition from rival Tesco, says JP Morgan Cazenove.Shares in Poundland have fallen 12% since March partly due to market concerns about Tesco's launch of "pound aisles" in some of its biggest stores, JP Morgan said. However, the broker said it believed the potential impact on Poundland of the aisles, which Tesco has dubbed Brand Zones, would be limited because the latter's customers were still likely to shop at Poundland.BC