BATS and the dreaded Canadian ruling

Categories : Trading Ideas

$JSEBTI and the dreaded Canadian ruling by SchalkLouw on

So, the Canadian court ordered British American Tobacco PLC LSE:BATS ), Philip Morris International Inc. ( NYSE:PM ) and Japan Tobacco Inc. ( TSE:2914 ) to pay $12.5 billion in damages to Quebec smokers after a 17-year legal battle, in the latest case to shock the global tobacco industry. This could see BATS needing to fork out about $8bn, which clearly won’t be good for the company. Just remember the saying: “BUY ON RUMOUR, SELL ON FACTS”. Although this is not good for the company, it was to certain extend, expected and a lot priced in.

What do the big financial houses think? Deutsche Bank restated their buy rating on shares of British American Tobacco Plc LSE:BATS ) in a research report sent to investors on Friday (1 March 2019). Deutsche Bank currently has a £4,000 price objective on the stock, which implies an upside of 40% from current levels. Other broker forecast and dates forecasted, includes:

01/03/2019 Broker: JP Morgan Rating: Overweight Old Target: £4200.00 New Target: £4000.00 Maintain
01/03/2019 Broker: Goldman Sachs Rating: Buy Old Target: £4860.00 New Target: £4910.00 Maintain
01/03/2019 Broker: UBS Rating: Buy Old Target: £4000.00 Maintain
28/02/2019 Broker: Liberum Capital Rating: Buy Old Target: £2795.00 Maintain
26/02/2019 Broker: Bernstein Rating: Market Perform Old Target: £2950.00 New Target: £3210.00

Thomson Reuters consensus also currently got a BUY on $BATS, with a target price of £3482 (22% higher compared to current levels).

This (the £4000) relates to a local $JSEBTI target price of R751. Thomson Reuters consensus currently got a target price on $JSEBTI of R779.53.

Looking at the longer-term graph, $JSEBTI did enjoy a nice little bounce off its 10-year resistance line in January 2019 and since then enjoyed quite a bit of momentum. Results was very good on Thursday, which saw the share price run a further 4.73% on Friday (1 March 2019). Over the short-term, according to its RSI , it could be somewhat overbought. Should we see negativity on the Canadian ruling, we could see BTIfind support at its 50-day moving average (R474), with its long-term trend line then acting as a crucial resistance/support at R425.

The 50-day moving average had a nice little positive turn, which indicate that the trend is a lot healthier. If you’re not invested yet and you feel we can see some negativity over the shorter-term (on the ruling) I might just wait for the R474 levels. I’m however already invested and still see my first target as both the 200-day moving average and horizontal resistance at around R600. Should it break through those levels, then both targets set by Deutsche Bank & consensus, could just be on point.

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