Business background and investment rationale
British American Tobacco PLC is an international tobacco company engaged in the sale of cigarettes, cigars, leaf and other tobacco products. It has over 300 brands in its portfolio which are sold in more than 180 markets. There is a particular focus on its four Global Drive Brands (GDB): Dunhill, Kent, Lucky Strike and Pall Mall.
Strong growth in emerging markets
In an interim result for the first six months, BATS reported 15% higher revenue at £5,457m thanks to a combination of favourable exchange rate movements, improved pricing and a better product mix. In Asia-Pacific, profits rose by £68m to £403m, mainly attributable to strong performance in Pakistan, Vietnam, Bangladesh, Australia and Malaysia, as well as benefiting from favourable exchange rates. The group’s associate in India, ITC, continued its strong profit growth; its contribution rose by £10m to £64m. At constant rates of exchange, the contribution would have been 13% higher than last year. In Europe, profits were up £126m hitting £530m, mainly as a result of excellent performances in Russia and Romania.
Significant acquisition in emerging market
In February 2008, BATS won the public tender for Tekel, the Turkish state owned Tobacco Company, with a bid of US$1,720m. The acquisition will raise the company’s share in the Turkish market, which is the eighth largest cigarette market in the world, to some 36% from just over 7%. The company also announced an agreement to acquire 100% of Skandinavisk Tobakskompagni’s (ST) cigarette and snus (moist powder tobacco) business. ST accounts for more than 60% of cigarette sales in Scandinavia, allowing BATS to strengthen its market positions in Denmark, Norway, Sweden and Poland, and achieve significant synergy benefits after acquisition.
Technical outlook
On daily chart, stock has fallen to 1400.0p near to its 52-week low of 1350. Volatility is decreasing in stock, indicating a formation of bottom between 1400.0p and 1500.0p. MACD is at historical low and 14-day RSI is moving above 30.0 indicating near to oversold.14-day -DMI is above 14-day +DMI and falling, indicating positive trend forming. Stock has good support between 1406.0p-1450 and strong resistance at 1683p and 1800.0p levels.
Trading strategy
The stock can be bought around 1540.0p with a profit target 1717.56p and stop loss of 1462.8p (Hedge position: Short position in spread betting with £0.81 bet per point).
Business background and investment rationale
AstraZeneca PLC discovers, develops, manufactures and markets prescription pharmaceuticals, biologics and vaccines for principle areas of healthcare, including cardiovascular, gastrointestinal, neuroscience, oncology, respiratory and inflammation, and infection.
Improvement in operational efficiency
As part of restructuring program, AstraZeneca undertook major restructuring in many of its European sales and marketing organisations in 2007. The company remains on track to deliver two-thirds of the total program benefits of $1.4bn per annum by the end of this year, with the full amount to be delivered by 2010. The company has increased its target range for core earnings per share for the full year by $0.15. Approximately half of the increase reflects the operational and financial performance of the business in the first half, and the outlook for the remainder of the year. The balance reflects additional currency benefits realised in the second quarter relative to the currency assumptions upon which the targets were based in fourth quarter 2007. Astrazeneca also announced a £1bn share buy back program which will be completed by December 2008.
Good progress in R&D pipeline and strong sales in emerging markets
By July 2008, the AstraZeneca pipeline comprised 143 projects, including 100 projects in the clinical phase of development. Since the last update on 31 January 2008, 20 projects have progressed to their next phase (including seven molecules entering first human testing); 15 compounds have been added from Discovery Research; and three compounds have been withdrawn. Sales in the emerging markets were up 20% in the second quarter. This marks the first time sales in emerging markets exceeded $1bn in a quarter. The key contributors to sales growth were cardiovascular products, Nexium, and the respiratory portfolio. Sales in China were up 29%.
Technical outlook
On daily chart, stock has made three higher lows from the October 10th low of 2006.0p, indicating a rebound in the stock. In MACD, 12-day EMA has cross 26-day EMA and 14-day RSI is above 40.0 crossing negative trendline, indicating weak buy signal.14-day -DMI is above 14-day +DMI but declining with volatility decreasing, showing consolidation above 2000p. Stock has good support near 2087.0p and strong resistance at 2376p and 2581.0p levels.
Trading strategy
The stock can be bought around 2300.0p with a profit target 2565.19p and stop loss of 2184.7p (Hedge position: Short position in spread betting with £0.542 bet per point).
