LONDON (ShareCast) - (Sharecast News) - Jefferies downgraded Imperial Tobacco on Friday as it pointed to risks from its focus on legacy assets, and upgraded British American Tobacco and Altria.
The bank cut Imperial Tobacco to 'hold' from 'buy' and reduced the price target by 28% to 1,466p.

It said that while it was bullish after the recent capital markets day about the extent of change at the company and the value this could create, it came away "somewhat disappointed", particularly with regards to the ongoing focus on legacy assets.

"With European regulatory risk, heightened growth pressures should reduced risk products (RRP) shifts accelerate, and little conviction in its own RRP strategy, we cut our price target by 28% and downgrade to hold."

Meanwhile, Jefferies upgraded British American Tobacco to 'buy' from 'hold' and lifted the price target by 29% to 3,606p.

"With RRP a dominant driver of current tobacco valuations, poor sentiment around BAT's outlook here has weighed," it noted. "We now see RRP sentiment turning more positive, with likely favourable catalysts and data points."

Jefferies said that beyond nicotine, BAT's recent move into cannabis also creates additional optionality, which it does not reckon is fully appreciated by the market.

Finally, Jefferies also upgraded Altria to 'buy'. "With tobacco sentiment and value increasingly driven by RRP, we see near term data points at MO as favourable," it said.

"Further, while optically MO's metrics would appear to be increasingly challenged if the shift away from smokers accelerates, we think this misses significant underappreciated optionality in vapour and cannabis via M&A, especially if selling its ABI stake to fund this."

It upped its price target on Altria by 46% to $58.00.

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