Panmure upgrades BAT on second-half optimism

30th Apr 2014 09:31

Panmure Gordon has upgraded British American Tobacco (BAT) from 'hold' to 'buy', saying it sees an improving performance in the second half from the company.The broker has hiked its target price for the stock from 3,225p to 3,850p.The tobacco and cigarettes company revealed that constant currency revenue growth was 2% in the first quarter, slightly below Panmure's 2.6% forecast.However, a 1% decline in cigarette volumes to 158bn was slightly better than expectations, though pricing was weaker, rising by just 3%.The broker said that the weaker pricing performance during the quarter "shouldn't be a surprise" to the market given the tough comparison of 8.7% growth in the first quarter of 2013. "The volume performance seems to be holding up in emerging markets which is encouraging. Western Europe remains challenging but we see tentative signs of economic recovery across the region as positive, given tobacco's typical late cycle nature," Panmure said. "During the second half, currency headwinds are likely to ease in and pricing should accelerate contributing good underlying earnings growth."The broker said that BAT's current valuation, trading at 16.3 times earnings with a yield of 4.2%, "looks attractive" compared with the wider sector.The stock was down 1.8% at 3,424.52p by 10:44 on Wednesday.BC