RBC upgrades British American Tobacco to 'sector perform'

6th Jan 2017 08:52

(ShareCast News) - RBC Capital Markets upgraded British American Tobacco to 'sector perform' from 'underperform' and lifted the price target to 4,400p from 4,300p."With the dilutive effects of Rothmans' impressive growth and transactional headwinds both moderating we think our Underperform recommendation is no longer warranted and consequently upgrade," the bank said.RBC said it still reckons the acquisition of Reynolds American is the likely outcome, but recognises that clarity on the US tax rate is needed before a deal can be finalised."Despite the higher uncertainty created by different assumptions on the tax rate, higher offer price and different permutations of cash and shares financing, we still regard a deal as the more likely outcome."Assuming a corporate tax rate of 15% till 2024, RBC derives a fair value of $67 per share for Reynolds versus $59 under the current tax regime of 37%."This goes up to $82 per share in the, unlikely in our opinion, scenario that a tax rate of 15% stays in place in perpetuity."At 0917 GMT, BAT shares were flat at 4,580p.