LONDON (ShareCast) - Jefferies has reiterated its buy recommendation for cigarettes and tobacco giant British American Tobacco (BATS) following the group's 'encouraging' start to 2012.

Organic revenue growth of 6%, in line with the broker's estimates, while organic volumes growth of 0.7% was better than expected (no change forecasted). However, a less favourable currency impact means that Jefferies's earnings per share estimates have come down by around 1%.

Of the four major international tobacco players, the broker says that BATS has the most favourable emerging market footprint, with two-thirds of its boluses coming from the developing world. Meanwhile, some 41% of its volumes come from markets where it holds the number-one position.

Furthermore, Jefferies notes that BATS is trading at 14.7 times earnings whilst Philip Morris International (its closest international peer) trades at around 16 times earnings - "we see BATS closing this discount".

The broker said that risks to its target price of 3,600p include: a sudden sharp rise in excise duties; increased plain packaging regulation; a major acquisition; consumer weakness in key markets; and a stronger sterling.

BC

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