Credit Suisse cuts British American Tobacco, foresees lower growth

24th Mar 2014 09:53

Credit Suisse has lowered its recommendation for British American Tobacco (BAT) from 'outperform' to 'neutral' and reduced its forecasts following the company's full-year results last month.The target price for the stock has been cut slightly from 3,550p to 3,500p."BAT's track record is among the most impressive we have seen in consumer staples. However, we see long-term earnings per share (EPS) growth 2.0-2.5% lower than previously," the bank said.Credit Suisse now estimates underlying EPS to increase at a rate of 8% rather than the 10-11% growth BAT has achieved historically. While this growth is still within the company's targets, the bank said this "perhaps rel[ies] more on the cash flow (share buybacks) than before and less on the organic performance".Credit Suisse said that BAT's volumes, which used to be flat to slightly up in the past, are now declining by 1-3% and a recovery is unlikely in the near term. Growth rates for consumer staples in the emerging markets, which account for 75% of BAT's volumes, "look set to be subdued for some time", it said. "The lower EPS growth we suggest is reflected in our lower rating. With immediate challenges in emerging markets and FX, we believe that BAT is fairly valued at current levels."The stock was trading 0.9% down at 3,209.5p. BC