JPMorgan puts BAT on ‘negative catalyst watch’, cuts price target
British American Tobacco
2,721.00p
16:40 05/11/24
JPMorgan Cazenove slashed its price target on British American Tobacco on Wednesday to 2,800p from 3,100p as it placed the shares on ‘negative catalyst watch’, saying that a challenging first half leaves guidance at risk.
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Tobacco
31,977.91
16:59 05/11/24
JPM - which rates the shares at ‘neutral’ - noted that amid incremental FX headwinds, US cigarette data continues to disappoint, while US e-cigarette data has also begun to soften. To reflect this, the bank cut its FY23/24 adjusted earnings per share estimates by 4%/6%.
"Despite assuming normalisation of US cigarette trends in H223 (which may prove to be optimistic), we now model just +3.6% constant currency (CC) EPS growth on +3.5% organic sales in FY23E, at the bottom end of the current guidance range," it said.
"We expect H1 to be especially weak with +1.4% CC EPS as underlying weakness and unfavourable shipment phasing drives US cigarette volumes down 15%."
JPM said that while its base case is that FY23 guidance will be maintained for +3-5% organic sales and MSD constant currency EPS growth, it sees risk that guidance could move lower given the weak US trends.
"As a result, we place shares on negative catalyst watch into H123 results on 26 July, where we sit 4% below Bloomberg consensus EPS.
"While we acknowledge that headline valuation appears attractive with shares trading near all-time lows on just 6.6x 2024 P/E and 5.9x, we note that visibility (both operationally and regulatory-wise) remains very limited as we continue to await an inflection in the US data, as well as US regulatory decisions on cigarettes and e-cigarettes."