Investment Column: BAT carries a health warning for investors

Laird; CSR


Our view: Hold

Share price: 2,405.5p (-32.5p)

Tobacco is one of the most defensive sectors in a downturn, for one simple reason. Smokers, particularly in the emerging markets, typically refuse to give up their habits, irrespective of how much companies raise prices.

Certainly, the shares of British American Tobacco (BAT), the world's second-largest quoted tobacco group, have put in a great performance over the past year. The price remains a little off its 12-month high of 2,490p earlier this month, despite a sell-off yesterday when the City was spooked by comments from BAT's chief executive that the "recession's impact on consumers is still with us and shows no sign of abating".

These "challenging" global conditions have led to lower industry volumes in countries including Romania, Turkey, Pakistan and South Africa. Sales also suffered from illicit trade and the loss of sales following floods in Pakistan. This saw underlying volumes tumble by 3 per cent, worse than was forecast by City analysts. That said, BAT grew its market share in its top 40 locations, boosted by strong sales of Kent, Lucky Stripe, Dunhill and Pall Mall cigarettes. It gave investors a further boost by revealing price increases and said it was focusing on cost-cutting. However, shares in BAT are starting to look pricey and they trade on a 2011 price-to-earnings ratio of 12.4. We do not doubt that BAT will continue to bring in profits and be a reliable share for years to come, but for now, investors should treat them like a mild health warning.

Laird

Our view: Hold

Share price: 149p (-3.1p)

Laird put out a solid trading statement yesterday that showed the electronics company recovering from a harrowing 2009, when business fell through the floor in the wake of the financial crisis. The company, which makes electromagnetic shields, antennae and other parts for products such as computers and mobile phones, also had to recover from losing a big chunk of business from Nokia. That's a big client and the Finnish giant's decision forced Laird to stop making handset mechanisms (the bits that slide out of mobile phones). Total sales for the third quarter of 2010 were £141m, an increase of 16 per cent after the handset-mechanisms business was stripped out. Combined with tight cost controls, revenue growth drove the operating margin close to double digits, which cheered analysts.

The shares have had a good run recently, rising by 40 per cent since July's first-half results, and are trading at about 13 times their estimated 2010 earnings. After the big cut announced in March, the dividend yields about 4 per cent – a respectable base for the progressive payout policy that the company is aiming for.

Laird's chief executive, Peter Hill, points to its broad product range and more diversified customer base, low-cost manufacturing and presence in fast-growing emerging markets as strengths of the business. We agree, but Laird is still a business in transition and so we are sticking to the hold recommendation that we gave to the company's stock in March.

CSR

Our view: Buy

Share price: 309.6p (-10.3p)

The UK semiconductor industry is in rude health, although investors do not always see it that way. Yesterday, Cambridge-based CSR announced a 10 per cent bump in third-quarter revenues but the disappointing guidance – mainly because of its lack of presence in the smartphone market – saw the stock smashed 10 per cent.

CSR is also expecting a weaker fourth quarter. Yet operations look set to improve next year and its new partnership with Infineon is expected to boost sales of its Bluetooth and Wi-Fi chips next year. Ex-cash, the stock is on a price of seven times 2011 earnings, and the fall in the share price looks like a buying opportunity.

Travel
travel
News
Tim Vine has won the funniest joke award at the Edinburgh Festival 2014
peopleTim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
News
Jamie and Emily Pharro discovering their friend's prank
video
Arts and Entertainment
Taylor Swift crawls through the legs of twerking dancers in her 'Shake It Off' music video
musicEarl Sweatshirt thinks so
PROMOTED VIDEO
News
Our resilience to stress is to a large extent determined by our genes
science
Travel
travel
Sport
sportBesiktas 0 Arsenal 0: Champions League qualifying first-leg match ends in stalemate in Istanbul
News
Pornography is more accessible - and harder to avoid - than ever
news... but they still admit watching it
Arts and Entertainment
The eyes have it: Kate Bush
musicKate Bush asks fans not to take photos at London gigs
News
i100
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Sport
Manchester United are believed to have made a £15m bid for Marcos Rojo
sportWinger Nani returns to Lisbon for a season-long loan as part of deal
News
news
News
i100
Arts and Entertainment
O'Toole as Cornelius Gallus in ‘Katherine of Alexandria’
filmSadly though, the Lawrence of Arabia star is not around to lend his own critique
Life and Style
fashion
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Quantitative Developer

£700 per day: Harrington Starr: Quantitative Developer C++, Python, STL, R, PD...

Web developer (C#, MVC4, HTML5, CSS3, Javascript, Jquery)

£30000 - £44000 per annum + Bonus+Benefits+Package: Harrington Starr: Web deve...

Senior Automation QA Engineer (Java, Selenium WebDriver, Agile)

£40000 - £65000 per annum + benefits+bonus+package: Harrington Starr: Senior A...

Web developer (C#.NET, ASP.NET, MVC3/4, HTML5, CSS3, JAVASCRIPT

£35000 - £45000 per annum + benefits+bonus+package: Harrington Starr: Web deve...

Day In a Page

Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home
Lauded therapist Harley Mille still in limbo as battle to stay in Britain drags on

Lauded therapist still in limbo as battle to stay in Britain drags on

Australian Harley Miller is as frustrated by court delays as she is with the idiosyncrasies of immigration law
Lewis Fry Richardson's weather forecasts changed the world. But could his predictions of war do the same?

Lewis Fry Richardson's weather forecasts changed the world...

But could his predictions of war do the same?
Kate Bush asks fans not to take photos at her London gigs: 'I want to have contact with the audience, not iPhones'

'I want to have contact with the audience, not iPhones'

Kate Bush asks fans not to take photos at her London gigs
Under-35s have rated gardening in their top five favourite leisure activities, but why?

Young at hort

Under-35s have rated gardening in their top five favourite leisure activities. But why are so many people are swapping sweaty clubs for leafy shrubs?
Tim Vine, winner of the Funniest Joke of the Fringe award: 'making a quip as funny as possible is an art'

Beyond a joke

Tim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

Sadly though, the Lawrence of Arabia star is not around to lend his own critique
Wicken Fen in Cambridgeshire: The joy of camping in a wetland nature reserve and sleeping under the stars

A wild night out

Wicken Fen in Cambridgeshire offers a rare chance to camp in a wetland nature reserve
Comic Sans for Cancer exhibition: It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans

Comic Sans for Cancer exhibition

It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans
Besiktas vs Arsenal: Five things we learnt from the Champions League first-leg tie

Besiktas vs Arsenal

Five things we learnt from the Champions League first-leg tie
Rory McIlroy a smash hit on the US talk show circuit

Rory McIlroy a smash hit on the US talk show circuit

As the Northern Irishman prepares for the Barclays, he finds time to appear on TV in the States, where he’s now such a global superstar that he needs no introduction
Boy racer Max Verstappen stays relaxed over step up to Formula One

Boy racer Max Verstappen stays relaxed over step up to F1

The 16-year-old will become the sport’s youngest-ever driver when he makes his debut for Toro Rosso next season
Fear brings the enemies of Isis together at last

Fear brings the enemies of Isis together at last

But belated attempts to unite will be to no avail if the Sunni caliphate remains strong in Syria, says Patrick Cockburn
Charlie Gilmour: 'I wondered if I would end up killing myself in jail'

Charlie Gilmour: 'I wondered if I'd end up killing myself in jail'

Following last week's report on prison suicides, the former inmate asks how much progress we have made in the 50 years since the abolition of capital punishment