British American Tobacco PLC (LON:BATS) has been upgraded to ‘equal weight’ from ‘underweight’ by Morgan Stanley after the bank concluded that risks from US tobacco regulation had “abated” in the short term.
In a note on the sector, Morgan Stanley’s analysts also hiked their price target to 2,600p from 3,500p, saying they saw “strong growth in the near term driven by strong pricing and ongoing cost savings”.
The bank added that following the recent US bans on flavoured vaping products, there was “a low probability of further major regulatory announcements ahead of the US elections", which they said will provide some relief for BAT.
However, analysts cautioned that in the longer term, “new entrants, new regulation, new legalisation and deliberate self-disruption” could all present risks to companies in the sector, while BAT itself could see its vaping product portfolio suffer from the flavour ban as well as a looming risk of maximum nicotine regulation, which will limit the most addictive element in tobacco products.
BAT is also disproportionality exposed to a recent US law raising the minimum age to buy nicotine products to 21 from 18. The bank said the law will not only reduce cigarette volumes but also hit menthol products, a segment where BAT is the market leader, particularly hard.
BAT shares were flat at 3,386.5p in mid-morning trading on Thursday.