JPMorgan puts BAT on ‘negative catalyst watch’, cuts price target

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."