Broker tips: AstraZeneca, Smiths Group, Dunelm, S&U
By Iain Gilbert
Date: Wednesday 12 Feb 2025
(Sharecast News) - Morgan Stanley has initiated coverage of pharma giant AstraZeneca with an 'overweight' rating and 14,5000p target price, recommending investors to build positions at a "compelling entry point".
The bank hailed AstraZeneca as an "innovation leader", saying that the company has an underappreciated pipeline with exposure to high-value markets across oncology, cardiovascular/renal and next-generation immuno-oncology.
"With pivotal clinical data starting in 2025+, success across these markets, could start to unlock value closer to our bull case valuation, £160/share," Morgan Stanley said. That compares with Tuesday's closing price of 11,624p.
As for the near term, 2025 should be a "catalyst-rich year", delivering double-digit bottom-line growth alongside continued strong product sales momentum, the bank said.
On Morgan Stanley's estimates, the stock trades at 15 times estimated earnings for 2025. While this is a 30% premium to other large-cap pharma peers, it is "justifiable given the superior top-line driven growth outlook [...] and significantly greater pipeline optionality," the bank said.
Citi upped its price target on Smiths Group on Wednesday to 2,700.0p from 2,400.0p as it updated its break-up analysis, stating that following the company's announcement last month that it was breaking up, it has moved to a break-up value sum of the parts, with an increased target price.
"Ahead of the planned exits of Interconnect and Detection, interim results on March 25th should give an opportunity for increased disclosure," Citi said, as it maintained its 'buy' rating on the shares. "Key divisional questions that could support our bull case of £31.00 include growth underpinned by the installed base in John Crane, and the outlook for underlying margin and return on capital employed potential within Detection."
Smiths announced at the end of January that it was selling its electronic connectors unit and would demerge or offload the detection operation as part of a strategic review that includes extending its share buyback to £500m.
It said the break-up of the group was part of a plan to "unlock significant value and enhance returns to shareholders" after US activist investor Engine Capital said Smiths should explore a split.
The surprise retirement of Dunelm's boss shouldn't put off investors from the homeware retailer's strong growth prospects, according to Canaccord Genuity which reiterated its 'buy' rating on the stock.
Nick Wilkinson announced on Tuesday that he would be stepping down from the company, choosing to retire from full-time executive life.
But while his departure creates some uncertainty for the business - the company is starting a thorough recruitment process and considering both internal and external candidates - Canaccord Genuity, which has 1,270.0p target price on the stock, wasn't fazed.
"We continue to believe that Dunelm offers an attractive growth opportunity with significant share gain opportunities in under-penetrated categories coupled with further UK store expansion potential," said the Canadian bank. "The retirement of well-respected CEO Nick Wilkinson after nearly eight years, whilst not expected, should not detract from the group's long-term growth opportunity."
The news came alongside Dunelm's first-half results, which showed a "robust" performance, said Canaccord Genuity, with continued market outperformance despite a challenging macro environment. The analyst highlighted that the price-to-earnings ratio of 12.9x offers good value for a market leader with strong growth prospects.
Analysts at Berenberg lowered their target price on finance business S&U from 2,100.0p to 1,700.0p on Wednesday but noted that the group was continuing to navigate a "challenging environment".
S&U's trading update on 11 February revealed the group's loan book reduced in size by 6% year-on-year during the year ended 31 January and by 3% since December, with lower motor finance lending activity partially offset by growth in the group's property bridging business.
Management also highlighted that, while continued headwinds in motor finance will be reflected in H225 profit, it anticipates a recovery in profitability during FY26, with Berenberg noting recent signs of improvement in motor finance lending volumes and collection rates.
The German bank, which has a 'hold' rating on the stock, reduced its earnings per share forecasts by 15% for FY25, 18% for FY26 and 6% for FY27, primarily due to a reduction in its short-term loan growth expectations for S&U's Advantage unit and higher expected impairments in FY25 and FY26.
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