Broker tips: Imperial Tobacco, G4S, BAE Systems
Regardless of whether the speculation swirling around a possible bid for Imperial Tobacco from British American Tobacco pans out or not, the organic story and valuation argument are “compelling enough”, Chris Whitman at Whitman Howard said in a research note sent to clients.
Aerospace and Defence
11,646.40
15:45 15/11/24
BAE Systems
1,286.50p
15:45 15/11/24
British American Tobacco
2,855.00p
15:45 15/11/24
FTSE 100
8,060.61
15:45 15/11/24
FTSE 350
4,453.56
15:45 15/11/24
FTSE All-Share
4,411.85
15:45 15/11/24
G4S
244.80p
16:40 04/05/21
Support Services
10,885.48
15:45 15/11/24
Tobacco
33,072.47
15:45 15/11/24
Whitman reiterated the recommendation he gave in another note on 11 November, “Imperial Tobacco shares should be bought and they should hit a £42 (4200p) share price in 2016 – i.e. investors who don’t hold should BUY and investors who do hold should BUY more shares.”
Among the drivers for the share price he pointed out the fact that the brand’s rejuvenation was ongoing, cost-cutting had more momentum, Imperial Tobacco is better equipped than others to operate across a range of nicotine delivery processes, and senior management is highly competent.
In particular, the broker pointed out the cash-generative nature of the fast moving consumer goods space (FMCG).
London-listed security firm G4S was under the cosh after Credit Suisse cut the stock to ‘neutral’ from ‘outperform’ and slashed its price target to 250p from 320p.
The downgrade came as the bank reduced its 2015-2017 earnings per share forecasts by 3% and 12%, respectively, to reflect FX, growing headwinds in emerging market operations – which accounted for 40% of 2014 EBIT – and looming challenges within the cash solutions business.
“These factors will, we think, limit both organic revenue growth rates and the impact of internal initiatives to improve efficiency,” said CS.
The broker said it had expected the combination of efficiency programmes, cost reduction and investment into sales/business development would drive both robust organic growth and margin expansion.
Shares in BAE Systems are up after Investec upgraded the stock from 'sell' to 'buy' on Friday, as well as upgrading the target price from 410p to 530p.
It came a day after the FTSE 100 company announced it won an extension to its nuclear submarine deal from the UK Ministry of Defence, taking the value of the work on the Astute-class vessel to £1.3bn.
Investec said that BAE stands to benefit from the UK’s Strategic Defence and Security Review (SDSR) out next week, which will clear up the country’s defence and security priorities.
“The UK Government’s “prosperity agenda” suggests the SDSR rhetoric may be more favourable to UK suppliers than previous reviews.
“A decision, as part of the SDSR, to extend the lives of the RAF’s Tornado and Eurofighter Tranche 1 aircraft could also be positive.”