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FTSE falls as Smith & Nephew and Shell disappoint

Discussion in 'Market News' started by Lily, Jul 28, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    A host of company updates see leading shares slip back from recent highs

    Leading shares are slipping back after hitting a near 12 month high this week, amid hints from the Federal Reserve overnight that it might yet raise interest rates this year and a spate of company news.

    Smith & Nephew, the maker of artificial hips, is the biggest faller, down 5% to £12.35 after it said it was suffering weak demand for its products in China. It also reported a poor performance from the Gulf states, leading to a 3% fall in second quarter operating profit. While it expected an improvement from China to begin in the second half, difficult trading conditions in the Gulf were likely to continue in the near term.

    Although slightly light of our forecasts and consensus estimate, S&N’s interim results reflect management’s assiduous efforts to diversify S&N’s portfolio away from its traditional markets. We like the fast growing sports medicine portfolio and note strong revenue growth in Knees. China and the Gulf States have continued to offer challenges during the period although management expects partial improvements in China in the second half. We maintain our hold recommendation for S&N with a target price of 1200p based on a sector multiple of 16 times on our 2017 estimated earnings per share forecast of 98c (75p). Risks to the S&N investment case include commoditisation in the orthopaedic and reconstructive surgery markets, medical device regulation and M&A risk.

    S&N has been and will continue to we believe a highly acquisitive company. Consequently, it is possible that S&N could overpay for assets that is sees as desirable or may face challenges in integration.

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