Broker snap: Investec positive about BATS and Imperial

1st Oct 2012 09:32

Investec has upgraded its recommendation for British American Tobacco (BATS) and reiterated its positive stance on sector peer Imperial Tobacco (IMT) after the stocks' recent underperformance."The NHS wants us to stop smoking for October. We respond by going long on UK tobaccos," said analyst Martin Deboo.BATS and IMT have underperformed the FTSE by 5% and 8% in the most recent quarter, respectively, on the back of negative newsflow around public-smoking regulations in Russia and plain-packaging worries in the UK."Russia is a big market, but also a finite one at c.8% of BAT & IMT's sales. Plain packaging in the UK is a threat only to IMT. Here we have been arguing that the share price impact is finite (100-200p) and that IMT could be a relative gainer from any move due to its strength in value cigarettes and roll your own/make your own tobacco," Deboo said.The broker has raised its rating on BATS from 'hold' to 'buy' and renewed its 'buy' recommendation for IMT. The latter is its preferred pick in the sector, mainly due to valuation grounds."While we are not starry-eyed about the outlook, fundamentals, plus a spot of chartism, argue for upside from here."By 09:39 on Monday morning, BATS was up 0.79% while IMT was trading 0.22% higher.BC