RBC Capital downgrades Imperial Brands, slashes price target

by | Dec 8, 2023

(Sharecast News) – RBC Capital Markets downgraded Imperial Brands on Friday to ‘sector perform’ from ‘outperform’ and slashed the price target to 1,800 from 2,200p on the back of strong outperformance relative to British American Tobacco.
The bank said that strong outperformance leaves the valuation looking in line with the company’s prospects. “Prospects which, given a very small and lacking NGP business, look increasingly dismal.”

RBC retained its ‘sector perform’ rating on BAT, but cut the price target to 2,900p from 3,500p.

“Despite the new CEO, in our opinion, setting more realistic expectations as well as the sizeable upside implied by our price target, we see little catalyst for outperformance until it can restart share buybacks,” it said.

The bank said that new long-term assumptions in its adjusted present values for the tobacco stocks drive both price targets down almost 20%.

“We have increased cost of equity to 11% and reduced long-term growth expectations after BAT’s £25bn write-down leaves us feeling gloomy about the sector’s prospects,” it said.

RBC said its long-held belief is that share buybacks are a major catalyst for outperformance in the tobacco space given a lack of investor appetite related to ESG constraints.

“This has driven our preference for Imperial Brands over BAT until today,” it said. “The tables seemed to be turning for BAT as it pledged to reinstate share buybacks once it reaches net debt/EBITDA of 2.5x.

“We thought that was imminent, but BAT’s acknowledgement that net debt/EBITDA is only now at 2.7x as a result of lacklustre financial performance has delayed that by around a year in our opinion. We now do not expect it to reach that hurdle until the end of 2024.”

Related articles

RBC Capital cuts Rentokil price target

RBC Capital cuts Rentokil price target

(Sharecast News) - RBC Capital Markets cut its price target on Rentokil Initial on Wednesday to 575p from 610p as it downgraded forecasts for forex and a greater back-end loading of TMX synergies, but said it believes the long-term story remains intact. The bank said...

Citi stays cautious about Experian on falling US credit flows

Citi stays cautious about Experian on falling US credit flows

(Sharecast News) - Citi has lifted its target price for data analytics and consumer credit reporting group Experian after a near-30% jump in the stock in the past two months, but has maintained a 'neutral' rating on the stock. Citi said back in August that while US...

Trending stories

Join our mailing list

Subscribe to our mailing list to receive regular updates!

x