Major upside potential at Smith & Nephew, says Berenberg

(Sharecast News) - Berenberg has kept its 'buy' rating on Smith & Nephew after the medical equipment manufacturer's first-half results last week, giving an optimistic take on its current turnaround strategy. The company reported 7.3% in underlying revenue growth year-on-year in the first half, with sales coming in at $2.73bn, offset by a weak margin performance. It lifted its full-year underlying growth guidance from 5-6% to 6-7% but kept trading profit margin forecasts unchanged at "at least 17.5".

Last summer, Smith & Nephew announced its '12-Point Plan' to fundamentally change the way it operates, focused on fixing the foundations of its Orthopaedics division, improving productivity and accelerating growth in the Advanced Wound Management and Sports Medicine & ENT business units.

"With the company now one year into management's 12-point improvement plan, we think the business needs to move from qualitative commentary to showing tangible evidence of delivery in its numbers," said Shore Capital analysts in a research note.

"If the company can do this, given its depressed valuation, we think the shares should re-rate strongly."

The share price, down 0.6% at 1,115.27p on Thursday morning, is right back where it was at the start of the year, having fallen 15% since hitting a high of 1,316.75p in April.

Shore Capital reiterated a 'buy' with a price target of 1,500p.