IMT

by John Marshall

Adam Spielman, the tobacco guru at Citigroup, has reduced his target price for Imperial Tobacco (IMT) by 14.5% from £24.80 to £21.20. Spielman says this ‘is not a change of view on Imperial’ but a reaction to ‘market realities’.

In the past year Imperial’s shares have underperformed the market by 3.3%, while shares in BAT (BATS) have outperformed by 36.5%. The broker believes the decline in Imperial’s shares from January’s high of £27.52 is ‘completely overdone’.

The group is due to update the market on 24 September. Spielman expects the statement to confirm results will be ‘in line with expectations’.

Imperial will also update the market on the French and Spanish markets whose importance has grown following last year’s £11 billion acquisition of Altadis. Imperial is losing market share in France and although it is gaining in Spain Spielman believes this is ‘a temporary phenomenon’ as Marlboro is at a ‘disadvantageous price point’ there.

September’s update is unlikely to contain’ material news on cost savings’ as negotiations with the unions will not be completed for some time.

The broker increased his fiscal 2008/09 earnings per share forecast by 2% to 158.6p to reflect sterling weakness. The target price implies a price/earnings multiple of 13.3 .