Broker snap: BATS more attractive than peers

6th Dec 2010 12:52

Nomura Securities has bumped up its price target for British American Tobacco (BATs) as margin progression appears to be ahead of expectations.The new price target is 2750p, and the recommendation remains to buy the shares."We expect underlying margins to be up 150 basis points [one and a half percentage points] in the second half of 2010 and surpass the 35% level in 2011 (a year ahead of target) and go onto over 40% by 2015," analyst David Hayes said. Margins will be helped by the appreciation of emerging market currencies versus the euro and the dollar, as well as more than £1.2bn of cost savings, as the group gets efficiency up to similar levels to its western European peers."BAT faces less risk of mix dilution (less premium than Phillip Morris International) and less risk from illicit trade and economy cigarette competitive intensity (less value than Imperial). Also has more complete options in longer term on research & developmment, mergers & acquisitions and further cost savings from relaxation on regional controls on tobacco," Hayes claimed, adding that the implied medium-term value of the shares is "significantly more attractive than peers".