Broker tips: BATS, IAG, Capita

25th Feb 2011 12:49

Even though volumes at British American Tobacco (BATS) were down in 2010, Nomura likes the 2011 outlook and stays positive on the tobacco giant.The Japanese broker says that second half volumes (-4%) were always going to be volatile given tax hikes in Japan and the Pakistan uncertainty, due to the floods."Both these markets will support 2011 (as will lapping of weak volumes in Turkey and Romania and improving trends in Russia)," says analyst David Hayes."[BATS] demonstrated: better pricing in the second half; ongoing margin development; outlined improving volume trends; and provided a buyback whilst maintaining flexibility for M&A."The broker stays with a 'buy' rating and confirms a target price of 2,800p.Having finally unravelled the first set of results from International Airlines Group (IAG), RBS, after an initial period of stupefaction, declared the results were in line, and kept to its 'buy' recommendation and 350p target price. The results were very convoluted, but after picking through and stripping out weather/strike-related costs and restructuring/merger charges, full year underlying earnings before interest and tax (EBIT) came in at €415m, slightly above the broker's estimate of €410m. However, RBS notes that fuel prices remain an obvious concern as every $1 on top of the oil price per barrel implies an additional €24m in costs which the company has to try to recover through fuel surcharges.Nevertheless, the broker says EBIT consensus of €650m-750m for 2011 seems achievable.Capita Group's 2010 results were broadly 'in line' but lacked any new information, says UBS. The outsourced services provider reported revenues of £2.74bn and organic revenue (negative) growth of -6.8%, beating the broker's estimates of £2.73bn and -7.3%, respectively."Shares rose on a higher bid pipeline (at £4.7bn), some indication of improving market conditions in the last 3-4 months and an upbeat tone at the results presentation," says UBS.However, the broker notes that the market continues to wait for a contract win and evidence that the higher bid pipeline will be converted and turn the tide on two years of declining organic revenue growth. With modest upgrades to earnings per share estimates, the broker also raises the target price to 720p, from 700p, but maintains its 'neutral' stance.