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Tobacco News
BAT shares draw mixed calls from analysts
  By: Adeline Paul Raj
Source: NSTP e-Media (my), 2002-04-19, via tobacco.org

ANALYSTS are mixed in their recommendations of British American  Tobacco Malaysia Bhd's (BAT) stock with some maintaining a "buy" on it and others downgrading it to a "hold" or "neutral".

Shares of the cigarette maker have always been a favourite among analysts and money managers for its high-dividend yields, strong management and corporate governance practices. These factors have warranted strong "buy" recommendations in the past.

Of the 17 brokers listed on Multex Global Estimates that have re-looked their earnings estimates for BAT since the release of the company's first quarter results, nine have a "buy" call, three have an "outperform" and two a "market perform".

Two, however, revised their calls to a "hold" and one a "neutral".

"There is no catalyst to drive the stock," said an analyst who downgraded BAT to a "hold" because he felt it would underperform the Kuala Lumpur Stock Exchange's Composite Index (KLCI).

"It's always a safe haven during bad times but there are better stocks to go on to in good times," said an analyst.

He said despite nothing fundamentally negative about the company itself, there would not be any significant growth in sales volume or earnings this year.

"There is nothing exciting happening," he remarked.

Another analyst, who also has a "hold" call on the stock, said the only reason he did not tag it a "sell" was because of BAT's strong dividend payouts. He estimated the stock's fair value at between RM37 and RM38.

The industry is expected to see a drop in the number of cigarettes sold this year after BAT and rivals JT International Bhd and Philip Morris Sdn Bhd raised prices for the past two consecutive years to offset higher taxes.

BAT, which has a 68 per cent market share, expects industry sales volumes to contract by between 1 and 2 per cent from last year. Analysts said this should reflect the company's sales volume for the year, which would be a slight improvement from a 3.5 per cent drop last year.

Another analyst noted a potential squeeze on the company's margins following a shortage of local tobacco leaf, resulting in the company having to import more leaf from Indonesia a costly exercise due to high import duties.

BAT's managing director Stuart Watterton said the company will fork out more money this year to support local tobacco leaf-growing initiatives, although it will be less than the RM35 million spent last year.

On the flip side, however, a string of other analysts still maintain that the company is a good stock to be considered.

"It's a rock," said Annuar Aziz of ABN Amro Asia Equity Research. He maintained a "buy" on BAT and estimated its fair value at RM40.

He said BAT is now trading at 15 times its price-earnings (PE) multiple compared with the pre-crisis level of 17 times.

"It deserves to correct at the the very least to 17 or 18 times its PE," he said.

BAT, which has been trading at an average of RM34.76 this year, closed 50 sen higher yesterday to RM35.50.


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