BAT gains as U.S. tobacco stocks rebound
Shares in British American Tobacco Plc bounced on Monday after U.S. tobacco stocks on Friday recovered some of the sharp losses sustained last week following a legal setback to the industry, dealers and analysts said.
They also said BAT shares were lifted by optimism ahead of third quarter figures from the UK-based group due on Tuesday.
BAT stock rose 16-1/2p or 4.4 percent to 396p by 0930 GMT in moderate turnover of around 1.4 million shares.
On Friday Philip Morris (NYSE:MO - news) rose $1-5/16 to $24-3/4 and RJR Tobacco (NYSE:RJR - news) gained $5/8 to $19-7/8.
Late last week the UK stock fell 90-1/2p or about 19 percent to a 13-month low after a Florida state appeals court refused to shelter U.S. tobacco companies from punitive damages in a landmark class action suit, exposing the industry to billions of dollars in potential claims.
BAT is the parent of the third largest U.S. tobacco company, Brown & Williamson.
Analysts said last week's falls by BAT were partly attributable to nervousness in the general market, and the stock was attractive to bargain hunters at current levels.
Merrill Lynch analyst Jonathan Fell said on Friday BAT stock looked very cheap on a six-month basis. His 12-month price target is seven pounds and he rates the stock a ``buy.''
``People seem to think the Florida decision was a decision made against the industry but it was no change from the previous position of the court and yet the stock is down 20 percent. The companies have every right to appeal on this issue at a later date,'' said Fell.
Meanwhile BAT was set to report higher third quarter 1999 profits, boosted by the first contribution from its acquisition of Rothmans.
Analysts said the underlying trading picture across the world had improved for BAT since the first half of 1999, but trading in the third quarter was still below last year's Q3 after stripping out the Rothmans effect.
``I don't think the results will provide any negatives the market does not already know about,'' said HSBC Securities analyst Nick Bunker.