Trading Ideas

BATS and the dreaded Canadian ruling

$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.

Schalk Louw
As Portfolio Manager at PSG Wealth Old Oak and with over 20 years’ experience in the investment industry, Schalk has consistently delivered solid returns to his clients and has certainly become one of South Africa’s most well-known strategists. He started his career in 1994 at the stockbroking company, Huysamer Stals (later ABN Amro). He joined SMK Securities in 1997, (later became BoE Personal Stockbrokers) and was later appointed as director and branch manager. In 2001 he co-founded Contego Asset Management and managed the company as CEO up to March 2014, after which he joined PSG Wealth Old Oak. Schalk has also become a regular household name with investors, with his reports being published in many of the national press. He completed his MBA in 2008.

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