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Broker tips: DiscoverIE, Smith & Nephew, IWG

Analysts at Berenberg raised their target price on components designer and manufacturer DiscoverIE from 850.0p to 930.0p on Wednesday, stating the group’s full-year results were evidence that its business model was as equally effective in a downturn as it was in an upcycle.
Berenberg stated DiscoverIE’s 2021 full-year results impressed against “a challenging backdrop”, with the firm’s organic revenue decline limited to just 6% year-on-year, adjusted operating margins down just 30 basis points and cash generation accelerating.

The German bank, which reiterated its ‘buy’ rating on the stock, also highlighted that DiscoverIE achieved “a strong recovery” through the second half of the year and that adjusted earnings per share came in 8% ahead of its expectations.

Looking ahead, Berenberg said the outlook for DiscoverIE was “positive”, with the group demonstrating “strong” organic momentum alongside “a healthy pipeline” of acquisitions and a balance sheet full of firepower to match.

“While there was plenty of evidence that DiscoverIE can outperform in an upcycle, the FY 2021 results emphatically illustrated that the business model is as equally effective in a downturn,” said the analysts.

Credit Suisse upgraded shares of artificial hip and knee maker Smith & Nephew on Wednesday to ‘outperform’ from ‘neutral’, lifting the price target to 1,805.0p from 1,560.0p as it pointed to “underappreciated growth drivers”.

The bank argued that S&N is an underappreciated elective surgery recovery play in the near term and that investors underestimate the combined power of recently acquired growth drivers with corresponding return leverage mid-term.

It upped its full-year 2021-2023 sales/adjusted earnings per share estimates by an average of 2 and 6%, leaving it 3% and 5% above Bloomberg consensus.

“As the drivers become clearer gaining the confidence of investors, we expect Smith & Nephew stock to reverse its material underperformance over the past 12 months,” Credit Suisse said.

The bank noted that since late 2017, Smith & Nephew has bought several bolt-on technologies, committing close to $1.6bn, and with associated negative M&A effects on trading margin of around 150 basis points for the 2021 trading year.

“We deep-dived into the potential for the new technologies,” it said. “We believe the Wound Biologics/Sports Medicine/Extremities/ENT franchises can add circa 80/15/40/40bps to group underlying growth mid-term.

“This would turn Smith & Nephew from low-to-mid single-digit into mid-to-high single-digit underlying growth mode and generate relevant operating leverage, providing upside to trading margin.”

Analysts at RBC trimmed their target price for shares of IWG following a profit warning from the serviced offices provider the day before due to the lower occupancy rebound.

The Canadian bank lowered its target on the stock from 330.0p to 300.0p, telling clients that the firm remained a “jam tomorrow”, with “many moving parts and uncertainties” around the macro environment and customer behaviour than ever before.

RBC also stated they believe that more master franchise agreements were needed to demonstrate value.

However, on the flip-side, the analysts branded the company’s structural growth and capital-light story as being “believable” and kept their recommendation on the shares unchanged at ‘sector perform’.

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