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Healthcare group Smith and Nephew has been under pressure recently, with a failed US trial of its spray-on skin treatment for leg ulcers along with fading hopes of a US bid.
Amercian medical technology group Stryker ruled itself out of a takeover for six months in May, but some investors had hoped it would return in November. However the recent US attempts to halt overseas deals done for tax reasons cast a shadow over many rumoured US-UK bids.
But a positive note from Barclays lifted the company’s shares 20.5p to 982.5p. The bank said it had fallen two far and could be lifted by either being acquisitive or acquired, US moves to dampen down so-called tax inversions notwithstanding. Analyst Alexander Kleban moved his recommendation from equal weight to overweight and his price target from £9.50 to £11.20. He said:
Since June S&N shares have seen the biggest correction (down 18%) since the Johnson & Johnson-Synthes deal and the Euro crisis (down 22%). We see two upside scenarios that could push S&N closer to our blue sky valuation of £15. Either: 1) S&N deploys $2bn-¢3bn on acquisitions from 2016, which could bring a 10% earnings per share uplift; or 2) S&N is part of a sector consolidation given that tax inversion is not an impediment here, in our view. Even under our base case, we think S&N’s transition to growth platforms remains undervalued and we see fundamental upside to £11.20 on tax rate improvement and incremental cost cuts.
Possible acquisitions could be in growth areas such as shoulder and foot and ankle replacement, said Barclays. As for a potential takeover of S&N, Kleban said:
Tax inversion is not a pre-requisite for consolidation. We believe there is sufficient upside potential from synergies and improving S&N’s 28% tax rate to make tax inversion an incremental upside, assuming Federal Trade Commission clearance is obtainable. Inversion benefits are not the only motivation for strategic healthcare deals.
We expect the third quarter to be disappointing on wound care. However, with the shares now down 14% from recent highs, we believe these results could prove to be an attractive opportunity ahead of the 11 November capital markets day that will focus on upside in the Sports Medicine franchise.
Still with health, and GlaxoSmithKline added 35p to £13.77 despite third quarter results coming in below expectations, as it was upbeat about the prospects for an Ebola vaccine, said it would return £4bn to shareholders and was considering floating off a minority stake in its HIV business ViiV Healthcare.
Overall the FTSE 100 finished 27.4 points higher at 6399.73, continuing its recent recovery. European markets also closed in positive territory, while in the US, the Dow Jones Industrial Average was up around 7 points by the time London closed.
Motor insurers moved higher after the AA reported the first rise in rates for two years, with Admiral up 42p at £12.85, Direct Line 8.5p higher at 279.6p and esure up 13.1p at 235p.
But British American Tobacco fell 91.5p to £33.75 after warning of a foreign exchange hit and weak markets in Europe.
Supermarkets continued to come under pressure after Tuesday’s weak figures from Kantar Worldpanel, with Morrisons down 4.2p at 157.9p, J Sainsbury 8.4p lower at 241.6p and Tesco off 2.9p at 183p ahead of the grocer’s much anticipated results on Thursday.
Among the mid-caps SuperGroup dropped 54p to 975p after appointing ex-Co-op boss Euan Sutherland as its new chief executive to replace founder Julian Dunkerton.
Laird, which supplies electronic components for smartphones, was lifted this week by news of Apple’s strong results, and its own figures have sent it even higher. Its shares rose 15.3p to 310p after it said third quarter revenue rose 6.4%. Numis issued a buy note, saying:
Growth was driven by strength in smartphones (Apple iPhone6 build and share gains at Samsung), 4G infrastructure roll outs and robust demand in automotive. We upgrade 2014 full year revenue to $952m from $940m, representing 11% organic growth. We leave earnings estimates unchanged to reflect continued investment. The sustained strong revenue growth is clearly positive, which combined with margin expansion should drive strong mid/high teens earnings growth from here. As we set out in our recent note, we believe there is potential for material value creation as earnings grow and the stock re-rates.
Finally Bango, the mobile payments company, added 5.5p to 101p after it signed an agreement with Samsung to provide carrier billing, collection and settlement through the Samsung Galaxy apps store.
