British American Tobacco PLC

British American Tobacco PLC (LON: BATS) is based out at London and is one of the leading, multi-category consumer goods companies in the world with core business focus around tobacco.

Financial Highlights (for the year ended 31^st December 2019, £ million)

(Source: Preliminary Results, Company Website)

On a reported basis, the company’s revenue for the financial year 2019 surged by 5.7% to £25,877 million, with more than 67% of the growth driven by combustibles and supported by higher revenue in both Traditional Oral and New Categories. In FY19, the new categories revenue rose by 36.9% or 32.4% to £1,214 million at constant rates with robust growth in all categories, despite the slowdown in US vapour. New Categories revenue, excluding US vapour, increased by 39% at constant rates. Based on a current rate, the adjusted margin surged by 50bps to 43.1% in FY19. The adjusted diluted earnings per share for the financial year 2019 surged by 8.4% to 321.6 pence at constant rates of exchange. The adjusted net debt reduced to £41,726 million in 2019 (2018: £43,407 million). Dividend per share surged by 3.6% to 210.4 pence.

Share Price Performance

Daily Chart as at February-27-20, before the market closed (Source: Thomson Reuters)

British American Tobacco PLC shares were trading at GBX 3,270.5 at the time of writing before the market close (at 9:48 AM GMT) on 27th February 2020 and were up by 1.51% versus the previous day closing price. Stock 52 weeks High and Low are GBX 3,507.00 /GBX 2,249.00. 

From the technical standpoint, its shares were trading well above its long-term support level of 200-day simple moving average prices, which reflects an uptrend in the stock.

British American Tobacco PLC V/S FTSE-100 Index Performance – 3 Months


(Source: Thomson Reuters)

In the last three months, British American Tobacco PLC share price has delivered 6.20 per cent return as compared to negative 6.78 per cent return of FTSE-100 index, which shows that the stock has outperformed the index during the last three months.

British American Tobacco V/S Industry V/S Sector – 6 Months


(Source: Thomson Reuters)

In the last six months, British American Tobacco share price showed positive performance. This also reflects that the company is outperforming as compared with industry and sector performance.The shares of the company have delivered a positive return of 16.92 per cent in the last one year.

Conclusion
The company expect international industry cigarette and THP (Tobacco Heating Products) volume to be tumbled 4%, with US industry volume down 5%, in 2020.  On constant rates of exchange basis, the adjusted revenue growth will be in the range of 3%-5%, together with continued improvement in operating margin and further growth in New Categories towards the financial year 2024 ambition of £5 billion in revenue. The business is on-track, and the group is confident of delivering another year of high single-digit constant currency adjusted earnings per share growth. Extrapolating today’s foreign exchange spot rates for the full-year, the company would anticipate a headwind of approximately 4% on full year adjusted EPS growth. In FY2020, the operating cash conversion target will be more than 90%, and adjusted net debt to EBITDA will be 3.2x.

Therefore, based on the above-discussed factors, we have given a “Hold” recommendation at the current price of GBX 3,192 (as on February 27, 2020, before the market close at 8:40 AM GMT).

Standard Chartered PLC

Standard Chartered Plc (LON: STAN) is a British multinational banking company, with headquarters in London, the United Kingdom.

Financial Highlights (for the year ended 31 December 2019, $ billion)

(Source: Presentation, Company Website)

In 2019, the company delivered a resilient performance, notwithstanding an unusual combination of macroeconomic and geopolitical challenges that impacted some of its largest markets.Net interest income tumbled 2% with increased volumes more than offset by a reduction in net interest margin. In FY19, the net interest margin decreased by 7bps to 1.62%. Excluding the UK bank levy, the operating expenses were down by 1% on a constant currency basis in FY19. In the current period, the other impairment decreased by $110 million to $38 million. Led by the increase in underlying profit and the decrease in tangible equity following the completion of the $1 billion share buy-back programme, the underlying return on tangible equity rose by 130 basis points to 6.4%. The underlying basic earnings per share (EPS) surged by 23% to 61.4 cents. The Board has proposed a final ordinary dividend per share of 20 cents which reflects a full-year dividend per share of 27 cents. The Group’s CET1 ratio stood at 13.8%, within the target range of 13%-14%.

Share Price Performance

Daily Chart as at February-27-20, before the market closed (Source: Thomson Reuters)

Standard Chartered PLC shares were trading at GBX 567.6 before the market close (at 8:20 AM GMT) on 27th February 2020 and were down by 3.96% versus the previous day closing price. Stock 52 weeks High and Low are GBX 742.60 /GBX 558.60.  The group’s stock is reflecting the higher volatility as against the benchmark index based on the company’s beta of 1.42. At the current trading level, its stock was trading below its short-term crucial support level of 20-day Simple moving average price, and prices could fall further from the current trading level.

Standard Chartered PLC V/S FTSE-100 Index – 3 months
 
(Source: Thomson Reuters)

In the last three months, Standard Chartered PLC share price has delivered negative 18.64 per cent return as compared to negative 6.99 per cent return of FTSE 100 index, which shows that the stock has underperformed as compared with the index.

Standard Chartered V/S Industry V/S Sector – 6 Months

(Source: Thomson Reuters)

In the last six months, Standard Chartered PLC share price showed negative performance. This also reflects that the company is underperforming as compared with industry and sector performance.The shares of the company have delivered a negative return of 5.68 per cent in the last one year.

Factors Affecting the Global Landscape
International growth slowed in 2019 and stood at 3%, weaker than the 3.8% growth witnessed in 2018. The euro-area economy growth likely eased from 1.9% in 2018 to 1.1% in 2019 on the back of global trade slowdown and Brexit uncertainty. Major central banks eased policy to guard against rising recession risks. There are numerous downside risks to this outlook, including a geopolitical event risk resulting in an oil price spike or escalation of US-China trade tensions. Emerging countries will have to emphasis on education and upskilling to meet the threat of rising joblessness due to automation. However, the evolution of the coronavirus situation globally remains a key uncertainty.

Conclusion
The underlying momentum in Q4 FY19 continued in the opening weeks of 2020, but slower global economic growth, the impact of the recent novel coronavirus outbreak, lower interest rates, and a softer Hong Kong economy will likely result in income growth in 2020 below the medium-term target range of 5%-7%.The US-China trade tensions and the property sector are sources of downward pressure on China’s economy. While external conditions are likely to be more challenging in the near-term.

On the basis of risks as aligned with the business operations, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 591.60 (as on 26^th February 2020), while any correction with support from few catalysts needs to be evaluated at a later stage.

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