Nomura Securities (European) Tobacco FY11/1Q12 Previews: PMI to Beat Consensus; Imperial Volumes Weak
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Nomura Securities (European) Tobacco FY11/1Q12 Previews: PMI to beat consensus; Imperial volumes weak on difficult comp; little surprise elsewhere
Analyst, David Hayes, said, "We downgrade the sector from Bullish to Neutral, partly to come more in line with the Nomura 2012 Global Strategy Outlook on 4 December, in which the team went underweight the more defensive parts of the market, with a zero weighting in consumer staples. By moving the sector to Neutral, this leaves tobacco as our favoured segment in consumer staples, with this preference driven by what we see as the unique pricing power of tobacco, the cost-led margin stories (e.g. BAT) and the lower valuations vs. the consumer average (14x ‘12E vs. consumer average of 15-16x although tobacco becomes cheaper if we adjust for the relatively low gearing levels for many names)."
"Imperial (OTC: ITYBY) (1 Feb, Interim Management Statement): Reduce our FY12 adjusted EPS estimate by 2.1% to 199.3p. For the three months ended December 31, we expect the company to report stick equivalent volumes of -4% (PY +1.2%). This decline is driven by further negative volumes in Western European markets, which also lap a very strong 1Q11 that benefited from a number of growth initiatives. We expect price/mix of +5.6% (PY +3.8%), driven by further benefits of pricing taken since mid-2011, including FY1Q12 in the UK, France and the US."
"Philip Morris International (NYSE: PM)(PMI) (9 Feb, FY11 Results): Reduce our FY11 and FY12 adjusted EPS estimates by 0.2% to USD 4.99 and by 2.2% to USD 5.31, respectively. The adjustments reflect updated FX and new growth projections into 2012. Expect flat volumes (PY -2.5%) and price/mix of +8.6% (PY +5.6%) in FY11. Our FY11 estimate is 2.7% ahead of consensus, as we think the above drivers (especially the Japan benefit) are underestimated by the market. With cost savings contributing, expect margins up 257bp (44.7%)."
British American Tobacco (NYSE: BTI)(BAT) (23 Feb, FY11 Results): Reduce our FY11 and FY12 adjusted EPS estimates by 0.8% to 194.0p and by 4.8% to 210.8p, respectively. The adjustments reflect updated FX, as well as slightly more conservative margin estimates and reduced level of buyback in FY12. In FY11, look for improved volumes of -0.4% (PY -3.6%) and stronger price/mix of +6.7% (PY +6.3%), as we see the benefits of the higher-priced Japanese volumes, share gains in top 40 markets and the rewards from significant pricing taken during the year. We expect these and cost savings to boost FY11 margins by 225bp (to 35.7%)."
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Analyst, David Hayes, said, "We downgrade the sector from Bullish to Neutral, partly to come more in line with the Nomura 2012 Global Strategy Outlook on 4 December, in which the team went underweight the more defensive parts of the market, with a zero weighting in consumer staples. By moving the sector to Neutral, this leaves tobacco as our favoured segment in consumer staples, with this preference driven by what we see as the unique pricing power of tobacco, the cost-led margin stories (e.g. BAT) and the lower valuations vs. the consumer average (14x ‘12E vs. consumer average of 15-16x although tobacco becomes cheaper if we adjust for the relatively low gearing levels for many names)."
"Imperial (OTC: ITYBY) (1 Feb, Interim Management Statement): Reduce our FY12 adjusted EPS estimate by 2.1% to 199.3p. For the three months ended December 31, we expect the company to report stick equivalent volumes of -4% (PY +1.2%). This decline is driven by further negative volumes in Western European markets, which also lap a very strong 1Q11 that benefited from a number of growth initiatives. We expect price/mix of +5.6% (PY +3.8%), driven by further benefits of pricing taken since mid-2011, including FY1Q12 in the UK, France and the US."
"Philip Morris International (NYSE: PM)(PMI) (9 Feb, FY11 Results): Reduce our FY11 and FY12 adjusted EPS estimates by 0.2% to USD 4.99 and by 2.2% to USD 5.31, respectively. The adjustments reflect updated FX and new growth projections into 2012. Expect flat volumes (PY -2.5%) and price/mix of +8.6% (PY +5.6%) in FY11. Our FY11 estimate is 2.7% ahead of consensus, as we think the above drivers (especially the Japan benefit) are underestimated by the market. With cost savings contributing, expect margins up 257bp (44.7%)."
British American Tobacco (NYSE: BTI)(BAT) (23 Feb, FY11 Results): Reduce our FY11 and FY12 adjusted EPS estimates by 0.8% to 194.0p and by 4.8% to 210.8p, respectively. The adjustments reflect updated FX, as well as slightly more conservative margin estimates and reduced level of buyback in FY12. In FY11, look for improved volumes of -0.4% (PY -3.6%) and stronger price/mix of +6.7% (PY +6.3%), as we see the benefits of the higher-priced Japanese volumes, share gains in top 40 markets and the rewards from significant pricing taken during the year. We expect these and cost savings to boost FY11 margins by 225bp (to 35.7%)."
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