Buy­back hopes light up to­bacco gi­ants

The Daily Telegraph - Business - - Business - Louis ash­worth mar­ket re­port

TO­BACCO gi­ants Bri­tish Amer­i­can To­bacco and Im­pe­rial Brands sparked up yes­ter­day af­ter an an­a­lyst said the groups could em­bark on a ma­jor pro­gramme of buy­backs.

A per­ma­nent seat in the naughty cor­ner doesn’t leave the cigaret­temak­ers out of op­tions, said Royal Bank of Canada an­a­lyst James Ed­wardes Jones. “It is hard to see how the to­bacco sec­tor can ex­tri­cate it­self from in­vestors’ [en­vi­ron­men­tal, so­cial and cor­po­rate gov­er­nance] penalty box,” he wrote in a note to clients.

“If in­sti­tu­tional in­vestors won’t buy the shares, the com­pa­nies should use their plen­ti­ful free cash flow to do so in­stead.”

Say­ing that both com­pa­nies’ shares look un­der­val­ued, Mr Ed­wardes Jones noted BAT and Im­pe­rial had enough free cash flow to buy back their own mar­ket caps within nine and seven years re­spec­tively. He added that the com­pa­nies’ per­for­mance looked strong enough to en­able sus­tained share re­pur­chases: “We see lit­tle sign of sales, driven by sig­nif­i­cant pric­ing power, los­ing mo­men­tum.”

BAT shares rose 108p to £27.33, while Im­pe­rial climbed 43p to £13.84. The rise left BAT near the top of the

FTSE 100 leader board but B&Q owner King­fisher took the top spot with a 9.9pc gain. The re­tailer rose 26.2p to 290.9p af­ter re­port­ing a jump in first-half profit, driven by high de­mand for home im­prove­ments and DIY amid lock­downs.

The blue-chip in­dex as a whole mounted a mod­er­ate re­cov­ery from Mon­day’s heavy plunge.

En­ergy gi­ant Royal Dutch Shell’s B shares rose 30.6p to 996.1p af­ter an­nounc­ing it will sup­ply tech ti­tan Mi­crosoft with re­new­able power, as part of the US group’s ef­forts to use 100pc re­new­able power by 2025.

At the op­po­site end of the in­dex, Premier Inn owner Whit­bread dropped 60p to £20.49 af­ter an­nounc­ing plans to cut 6,000 jobs as the ho­tel in­dus­try is dev­as­tated by coro­n­avirus. Only in­surer RSA, down 18.8p at 452.9p, and drug maker

Hikma, off 116p at £24.70, had a worse day on the blue-chip in­dex. RSA and Ad­mi­ral both lost ground af­ter the City watch­dog an­nounced plans to crack down on “price walk­ing”, in which re­new­ing pol­i­cy­hold­ers are charged at higher rates.

The FTSE 250 trun­dled along flat as chunky drops for mid-cap in­sur­ers off­set a mild re­cov­ery for the leisure stocks that took a beat­ing dur­ing Mon­day’s sell-off. Bea­z­ley plunged 54.8p to 335.2p – its woes com­pounded by its dis­clo­sure of big­ger-thanex­pected Covid-linked losses – while Di­rect Line fell 22.1p to 279.3p.

Mid­dle East-fo­cused pay­ments provider Net­work In­ter­na­tional led FTSE 250 ris­ers, jump­ing 59p to 295p, af­ter its bosses con­tin­ued to buy up shares in the group. Its price dropped 41pc over five ses­sions through Mon­day, leav­ing an­a­lysts con­fused.

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