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The Expert View: British American Tobacco, Rio Tinto and RSA

Our daily roundup of analyst commentary on shares, also including William Hill and Travis Perkins.

by James Sutton on Aug 03, 2017 at 05:00

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Key stats
Market capitalisation£110,599m
No. of shares out2,294m
No. of shares floating2,207m
No. of common shareholdersnot stated
No. of employees85335
Trading volume (10 day avg.)15m
Profit before tax£4,648m
Earnings per share249.22p
Cashflow per share288.53p
Cash per share119.02p

British American Tobacco backed to ride US storm

The announcement of a potential crackdown on the level of nicotine in cigarettes by the US Food and Drug Administration (FDA) may have caused a slump in tobacco stocks last week, but British American Tobacco (BATS) is still in a strong position, according to Berenberg.

Earnings per share jumped 21% in the first half of the year, well ahead of expectations. Sales were also up, but analyst Jonathan Leinster said the group was still lagging rival Phillip Morris in the growth and size of its business focused on next-generation products, such as e-cigarettes.

Leinster reiterated his ‘buy’ recommendation, arguing the FDA’s move need not make a difference to the outlook. ‘Many other countries have already employed maximum tar and nicotine levels without causing a significant disruption in their cigarette markets,’ he said.

British American Tobacco’s share price edged higher to £48.31 yesterday, having regained some ground from its low of 4713p on Friday.

Key stats
Market capitalisation£61,281m
No. of shares out1,792m
No. of shares floating1,184m
No. of common shareholdersnot stated
No. of employees51018
Trading volume (10 day avg.)5m
Turnover25,594m USD
Profit before tax3,498m USD
Earnings per share1.93 USD
Cashflow per share4.01 USD
Cash per share3.59 USD

Rio Tinto falls short despite record dividend

First-half results for mining giant Rio Tinto (RIO) were mixed, with improving performance that nevertheless fell short of expectations.

Even a doubling of profits to $3.9 billion (£2.9 billion) and a record dividend of $1.10 a share, up 45 cents and equating to a $2 billion payout, wasn’t enough to impress investors, who sent the shares 2% lower to £34.39. Rio also announced plans for a further $1 billion in share buybacks.

‘There’s some disappointment in today’s numbers, which don’t quite match up to what the market had been expecting,’ said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

‘However, the more important takeaway for many investors will be the sizeable cash returns the group has announced. With debts now firmly back in hand, Rio is in a position to pass the benefits of higher commodity prices back to shareholders, and today highlights the long term dividend paying potential of the mega mining groups. ‘

Key stats
Market capitalisation£6,586m
No. of shares out1,023m
No. of shares floating1,016m
No. of common shareholdersnot stated
No. of employees13674
Trading volume (10 day avg.)3m
Profit before tax£45m
Earnings per share4.39p
Cashflow per share14.45p
Cash per share96.61p

Shore says ‘sell’ after strong interims for RSA

Insurance firm RSA (RSA) has returned a strong performance in the first half of the year, with operating profits of £360 million. That’s up by £48 million, or 15.4%, on the same period last year, and up by £22 million, or 6.50%, on the consensus forecast.

Shore Capital analyst Eamonn Flanagan applauded the ‘excellent’ results, but reiterated his ‘sell’ recommendation, noting that ‘the stock is much too richly valued.’ The firm had reported an improved attritional loss, lower weather losses but a sharp increase in large losses, prompting Flanagan to note that ‘the market is taking too much for granted in terms of smooth underwriting delivery.’

The shares fell 2.5% to 642p yesterday.

Key stats
Market capitalisation£2,368m
No. of shares out858m
No. of shares floating854m
No. of common shareholdersnot stated
No. of employees16286
Trading volume (10 day avg.)4m
Profit before tax£165m
Earnings per share18.80p
Cashflow per share28.70p
Cash per share24.29p

William Hill makes up lost ground

Shares in William Hill (WMH) surged yesterday after better-than-expected results from the bookmaker.The shares were up 12.9% at 281.8p on news revenues grew 3% in the first half of the year.

Peel Hunt analyst Ivor Jones raised his rating on the stock to 'add' from 'hold' and upped the target price to 290p from 254p following the news. ‘Today’s results show improved momentum in the business with the implication of market share gains,’ he said.

‘The results were ahead of our forecasts and we have reversed the downgrades we made only a few weeks ago.

‘In addition, the share price is at a low point from which we believe it can rally.’

Key stats
Market capitalisation£3,773m
No. of shares out251m
No. of shares floating240m
No. of common shareholdersnot stated
No. of employees24656
Trading volume (10 day avg.)1m
Profit before tax£13m
Earnings per share5.02p
Cashflow per share53.65p
Cash per share99.88p

Mixed picture for Travis Perkins

It has been a relatively stable first half of the year for builder’s merchants Travis Perkins (TPK), despite seeing profits before tax decline by 5%.

Sales were up 3.5% but offset by rising overheads related to longer term growth initiatives. Margins were maintained, with Travis Perkins passing on the higher cost of materials on to customers.

Liberum analyst Charlie Campbell said that the outlook was still looks positive, as ‘the new plan to restructure plumbing and heating appears appropriate, and success would end a drag on the group’s growth’.

‘We continue to like Travis Perkins as we believe that its strategy to exploit its scale more ambitiously will lead to better returns, prospects and valuation,’ he added, reiterating his ‘buy’ recommendation and £16.50 target price.

The shares fell 1.2% to £15.13 yesterday.

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  • RSA Insurance Group PLC (RSA.L)
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  • Travis Perkins PLC (TPK.L)
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  • William Hill PLC (WMH.L)
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  • Rio Tinto PLC (RIO.L)
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  • British American Tobacco PLC (BATS.L)
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