British American Tobacco (LON:BATS) suffered a downgrade to ‘neutral’ on Monday as Credit Suisse removed its ‘outperform’ rating on the tobacco giant.
The Swiss broker trims its estimates by 3-5% following the recent annual results, lowering his price target by 50p to £35.
The company’s track record may be among the most impressive it has seen in the consumer staples sector, but lower earnings growth puts a slight dampener on its view, as do challenges in emerging markets and adverse currency movements.
Imperial Tobacco (LON:IMT) though retained its ‘outperform’ recommendation, with a higher target price of £27 from £26 previously.
The broker says that with scope for consolidation in the industry, it is possible that the ‘big four’ becomes the ‘big three’.
“We doubt IMT stays independent for ever,” Credit Suisse remarked.
As for the tobacco market in general, the broker sees volumes continuing to fall, but at a slower pace.
“We believe the markets will return to their previous, rather more steady declines (rather than the steeper falls of late), although not for a year or so.”