One to watch: Smiths Group

Smiths' diverse nature has proven to be both a blessing and a curse in recent years. While its exposure to a range of end-markets and industries helped maintain robust profits during the downturn, it has also meant that investors have applied a conglomerate "discount" to a company that does not fit easily into any one identifiable category.

Current chief executive Philip Bowman was appointed in 2007 and has a track record of delivering value for shareholders, following stints at ScottishPower and Allied Domecq. His focus upon joining the company was on reducing costs, expanding in emerging markets and improving R&D productivity.

Now that profitability has been improved, the next stage is a more active management of the group's businesses.

Smiths is trading on a 2012 PE of close to 11x, a discount to the UK capital goods sector and offers a dividend yield of 3 per cent. Even in the absence of any corporate restructuring, we believe this undervalues a company that sells into well-diversified markets and has significantly improved its operating performance.

Smiths Group

1,141p +21p

Scotsman says BUY

• This article is for information and discussion purposes and does not form a recommendation by the manager to invest or otherwise.

BROKER SNAPS

Johnson Matthey

2,016p +78p

Broker says HOLD

CHARLES Stanley believes the "positive tone" of specialist chemicals firm Johnson Matthey's first-quarter trading update may give "a short-term sentiment boost to the share price". But the broker added: "Whilst we regard a premium rating as appropriate, we view significant share price upside from these levels as limited."

Marston's

102p +1.6p

Broker says BUY

AHEAD of next week's third-quarter trading update from Marston's, Numis has upgraded its rating on the brewer and pubs operator from "add" to "buy", following "recent weakness" in the share price. The broker said: "Marston's is outperforming the sector, offering attractive medium-term growth."