Buyback hopes light up tobacco giants
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.