Friday tips round-up: Rolls Royce, Imperial Tobacco

14th Feb 2014 07:28

Analysts who thought that Rolls Royce's good run in defence would come away unscathed through a period of uncertainty were breathing their own fumes. Neither do the supposed long-term investors in the company's shares seem to have been all that they were cracked up to be. The company has been a brilliant long-term story but on Thursday it announced sales and profits at its aerospace unit would fall by as much as 20 per cent this year. Given that unit accounts for only a quarter of operating profits that means that total operating profits will only take a five per cent hit. Yet investors duly grabbed for their parachutes and sent the shares diving by 14 per cent. That is even more irritating given the rest of the firm's outlook was steady. Even so, the sudden recognition of the long-term reality that is declining defence spending in the US may yet inspire more short-term selling, says the Financial Times' Lex column. Shares of Imperial Tobacco have fallen over the last 12 months, despite the 5.5% dividend yield on offer, mirroring the decline in its market. Not surprisingly its first quarter numbers showed total volumes of cigarettes off by 5%, even if that is in line with the industry. In the UK volumes were down by 7%, although some of that can be put down to the substitution of the products it peddles by cheaper roll-your-owns. The company has put in motion various remedial measures, including cost cuts, the disposal of some minor assets and a strategy re-focus. In fact, it managed a 1% rise in underlying tobacco revenues during the first three months of the year. Unfortunately, that got washed away by the strength in sterling, which sent sales on an as reported basis 6% lower. "Aside from that yield, then, there does not seem to be a lot to go for," The Times' Tempus muses.Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB