Broker snap: Panmure pares forecasts for BATS after Q3 miss

24th Oct 2012 10:47

Below-consensus third-quarter results from British American Tobacco (BATS) have led Panmure Gordon to cut its price target for the stock.Revenue growth for the nine months to September 30th came in at 4% in constant currency terms, missing Panmure's assumption that growth would have accelerated from the 4% registering the first half. Overall volumes declined by 1.2% to 517bn sticks in the nine-month period, missing the consensus estimate of 520bn and Panmure's 522bn forecast. Volumes in the third quarter alone fell by a worse-than-expected 3.4% to 173bn."In order to reflect the lower volume performance we reduce FY volume expectations from 704bn sticks to 695bn sticks and given the on-going currency headwinds we now expect reported revenue decline of 0.5% to £15,324m," the broker said.As such, its adjusted operating profit estimate has been cut by 1.2% to £5,625m for the full year, down from £5,694m previously. Full-year earnings per share (EPS) are now expected to be 204.7p, down from the previous estimate of 206.9p. This represents EPS growth of 5.2%.With the broker also having cut its forecasts for 2013 and 2014, the target price for the shares has been pared from 3,700p to 3,650p.Nevertheless, a 'buy' rating for BATS has been retained."Tobacco stocks have been weak recently, impacted by negative regulatory news flow and a more general switch out of defensive names. Year to date BATS' shares have underperformed the FTSE All Share by 2.5%, recording an absolute gain of just 3.6%."The broker says that the valuation - the shares currently trading at 14 times future earnings with a current yield of 4.3% - is "undemanding given the strength of the underlying cash flows".Shares were down 1.03% at 3,131.5p in mid-morning trade on Wednesday.BC