SocGen upgrades British American Tobacco despite missed forecasts

30th Apr 2015 09:30

British American Tobacco missed analysts' forecasts slightly with its first-quarter results this week, but that wasn't enough to deter Societe Generale from upgrading the stock from 'hold' to 'buy'.The French bank said that the solid pricing backdrop means that the cigarette and tobacco group is still on track."Following [share] price weakness, we upgrade to 'buy', which is supported by 15% total shareholder return to our target price," SocGen said.BAT reported on Wednesday that constant-currency organic sales growth (OSG) was 1.7% in the three months to 31 March while volumes fell 3.6%, shy of the consensus estimates of +3.5% and -1.9% respectively.Read more: British American Tobacco's slow-burn sales disappointNevertheless, SocGen said the key positive for this year was that BAT's peer Philip Morris International is "likely to drive strong pricing discipline (given US$ headwinds) to the benefit of the industry".Meanwhile, assuming the pending Reynolds-Lorillard merger is cleared by the Federal Trade Commission in the States - BAT holds a 42% stake in Reynolds - "we estimate this would be ~6% pro forma enhancing for BAT", SocGen added.The bank maintained a 4,000p target price for the stock, which was up 0.2% at 3,595p by 10:48 on Thursday.