Finweek English Edition - - INVESTMENT -

While the group faces a num­ber of reg­u­la­tory is­sues, Absa As­set Man­age­ment be­lieves that the longterm in­vest­ment case for the com­pany re­mains sound. Port­fo­lio Man­ager Gary Smith com­ments: “BAT is trad­ing at a dis­count of 20% to t he Euro­pean Sta­ples eq­uity sec­tor. Its profit-growth model is far from bro­ken and the share may gen­tly rerate from here. The op­por­tu­nity for fur­ther price ap­pre­ci­a­tion (to about R588) is avail­able should there be more or­ganic mar­gin ex­pan­sion and cost sav­ings, prompt­ing a rerat­ing of the share to a PE of 17 times. The wide­spread launch of Plain Pack­ag­ing ( PP) leg­is­la­tion (as in Aus­tralia) and other reg­u­la­tory head­winds are risks which could lead to a po­ten­tial de­rati ng and a P/ E of 12.5 t i mes. Un­der that sce­nario the share price could dip to about R420. Al­though PP leg­is­la­tion is a risk for earn­ings di­lu­tion and share price, BAT’s pre­dom­i­nance in emerg­ing mar­kets and up­side to EPS from Brazil and Rus­sia are ex­pected to limit the im­pact. We pre­fer to be op­ti­mistic about this share and it re­mains a core hold­ing in our port­fo­lio.”

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