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BAT factory in Bayreuth, southern Germany. Photo: Reuters/Michaela Rehle
BAT factory in Bayreuth, southern Germany. Photo: Reuters/Michaela Rehle Photograph: MICHAELA REHLE/REUTERS
BAT factory in Bayreuth, southern Germany. Photo: Reuters/Michaela Rehle Photograph: MICHAELA REHLE/REUTERS

FTSE 100 slips as British American Tobacco shares go up in smoke

This article is more than 9 years old

Cigarette maker falls 4% as revenues miss forecasts on weak European markets

Leading UK shares are on the slide again as concerns about global growth continue.

In particular British American Tobacco has unsettled investors after warning of a foreign exchange hit and, crucially, weak markets in Europe.

The company, known for its Pall Mall and Dunhill brands, said nine month revenues had fallen 9.6%, but excluding the currency effect, it reported a rise of 2.4%. The total number of cigarettes sold fell by 1% to 495bn, with increased taxes intended to discourage smoking hitting demand, which was weakening in any case. It said:

The trading environment remains challenging due to continuing pressure on consumer disposable income worldwide and the slow economic recovery in western Europe.

The comments hit other companies reliant on consumer spending, with rival cigarette company Imperial Tobacco down 22p at £25.29, Diageo down 16.5p at 1738.5p and Unilever 22p lower at £25.05.

On BAT, analyst Chris Wickham at Oriel Securities said:

BAT’s third quarter trading statement, which gives 9-month cumulative revenue and volume data, in addition to an update on drive brands performance, was beneath market expectations on revenue at 2.4% versus 3.2% consensus (source: Bloomberg) and our own 2.7% view.

Overall, these results are undramatic. However, the severity of the currency headwind prompts us to remain cautious about reported earnings for companies which bias both revenue generation and growth to emerging markets.

BAT’s decline has helped push the FTSE 100 down 19.31 points to 6353.02, despite positive moves on Wall Street and in Asia overnight. Concerns about growth outweighed Tuesday’s report that the ECB might buy corporate bonds as part of its attempt to lift the flagging eurozone economy.

Supermarkets continued to come under pressure after Tuesday’s weak figures from Kantar Worldpanel, with Morrisons down 3.5p at 158.6p, J Sainsbury 3.7p lower at 246.3p and Tesco off 1.95p at 183.95p ahead of the grocer’s much anticipated results on Thursday.

Among the mid-caps SuperGroup has dropped 25p to £10.04 after appointing ex-Co-op boss Euan Sutherland as its new chief executive to replace founder Julian Dunkerton.

Home Retail Group, owner of Homebase and Argos, reported a 13% rise in underlying first half profit but fell 3.9p to 171.7p as it said it would close a quarter of its DIY stores.

But gaming technology group Playtech has put 50p to 752p on after it said third quarter revenue jumped by 29% and it was confident it would beat market expectations for the full year. Peel Hunt analyst Nick Batram issued a buy note and said:

Playtech has delivered another impressive quarter of growth and yet again we are raising our forecasts. Asia is once again a key driver but Europe also delivered double digit growth and all verticals saw positive progress. With €400m of net cash the opportunities to increase shareholder value are significant.

Our initial thoughts are to raise our 2014 EBITDA forecast by around 5% to €204m, which equates to earnings per share of 60.5c (from 57.5c). We also expect to put a small upgrade through for following years as well. There will be those that point to the unregulated nature of Asian earnings but we covered this in our recent note, citing the reinvestment in regulated markets, recent regulated licensee wins and the plethora of options open to the group to enhance shareholder value presented by its large cash position. Therefore, we are happy to retain our Buy recommendation.

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