Broker snap: Nomura raises targets on BATs and IMPs

18th Sep 2012 11:59

After reviewing key news-flow across the industry in the prior month as well as the latest market data for Spain and Japan cigarettes, Swedish and US smokeless, and US cigars, analysts at Nomura have up-dated their forecasts for the companies within this sector where appropriate. In greater detail, its fiscal year 2012 earnings per share estimates for British American Tobacco (BAT) (+0.2%) and Philip Morris (+2.2%) have been raised to reflect better Japanese industry volume estimates. At BAT this increase was offset somewhat by updated Brazilian volumes to reflect the lost share to illegal trade post the May tax driven price increases.More significantly, Nomura raised its price targets on all the tobacco names it covers as a result of its updated WACC (weighted average cost of capital) estimates. These are meant to reflect its new assumptions around the risk free rate and equity risk premium. Nomura explains that it has also updated its cost of debt estimates where appropriate. Its new target prices are: BAT 3500p (+3.5%), PMI USD 80.50 (+3.0%), Imperial 2230p (+1.5%) and Swedish Match SEK 285 (+3.5%).Lastly, and in the case of BAT, it adds that it remains its top-pick given that its 2013 core price-earnings multiple (PE) (excluding associates' normalised gearing) of 12.7x compares favourably to its peer average of 13.5x, where it sees superior top and bottom line fundamentals (share gains, innovation pipeline, cost saves) driving further upside from here. AB