Wednesday 14:00 GMT

What’s happening

● Cigarette makers British American Tobacco and Imperial Brands faded after the US Food and Drug Administration named National Cancer Institute director Ned Sharpless as acting commissioner to replace Scott Gottlieb, who announced plans to step down this month.

“This reinforces our view that investors were premature to assume that Gottlieb’s departure would lead to a lighter regulatory hand over the tobacco industry out of Washington. It now appears the FDA will not skip a beat in its pursuit of tobacco regulations, and we continue to believe Congress will seek to become more involved in addressing the youth ecigarette epidemic during the months to come.”

Height Securities

Separately, BAT said it had put its Canadian subsidiary into insolvency administration. The subsidiary, Imperial Tobacco Canada, had been liable for a £5.2bn fine as part of a ruling against the tobacco industry in Quebec. Canada was estimated to contribute about 4 per cent of BAT’s underlying earnings.

Citigroup called BAT’s move a “necessary first step” as the industry seeks to settle claims on a national level, which will probably take many years. In the interim the Canadian subsidiary can continue to operate unaffected and BAT will continue to consolidate its revenue within the group, so “on the face of things, little will change”, the broker added.

But Citi highlighted that BAT was unlikely to be able to take cash out of Canada for the foreseeable future, affecting its ability to pay dividends and service debt. BAT has already taken a £436m charge to cover cash trapped on the Imperial Tobacco Canada balance sheet, with Citi estimating a further £600m at risk.

Standard Life Aberdeen rallied to the top of the FTSE 100 gainers after delivering better than expected full-year results and dismantling its much-criticised management structure. The asset manager said Martin Gilbert, co-chief executive, would become group executive vice-chairman reporting to recently appointed chairman Sir Douglas Flint. Keith Skeoch, meanwhile, would remain as chief executive. The company also appointed Stephanie Bruce to replace Bill Rattray as chief finance officer.

SLA added that it was committed to holding dividends flat at worst “during the period of transformation” and said it was ahead of schedule in delivering cost efficiencies. Full-year adjusted operating profit of £650m, down 1.6 per cent year on year, was 5 per cent ahead of the consensus forecast.

GVC, the Ladbrokes owner, retreated after Germany proposed amendments to its Interstate Gambling Treaty with restrictions on in-play sports betting, including introducing a €1,000 monthly spending limit. State presidents will vote on the proposals on March 21.

Merrill Lynch estimated that Germany provides around 9 per cent of GVC’s group revenue, of which 55 per cent is casino betting and 45 per cent is sport. It also cited data from the German Sports Betting Association suggesting that in-play bets make up between 60 per cent and 70 per cent of the market.

● Avast slipped to a one-month low on the surprise retirement of Vince Steckler, its chief executive for the past decade, little more than a year after the flotation of the antivirus software maker. He will be succeeded by Ondrej Vlcek, president of Avast’s consumer business and its chief operating officer between 2007 and 2013.

Full-year results and 2019 guidance from Avast matched market expectations.

Boeing edged higher in morning Wall Street trade as analysts urged for calm in the wake of Sunday’s crash of an Ethiopian Airlines B737 Max, the company’s most important jet in terms of product revenue and earnings. Shares in Boeing have fallen more than 10 per cent since the crash as airspace regulators in China, the UK and the EU grounded flights.

“There is no valid reason to suspect the cause of the Ethiopian crash renders the B737 Max unsafe — the cause of the Ethiopian Max crash could as easily be a mechanical fault as a flight control issue. We’re witnessing an unprecedented situation where politics is trumping science — not a good thing and not a sound reason to sell the stock. In a worst-case situation, we think the financial impact to Boeing is likely to be relatively small.”

Buckingham Research

Sellside stories

● Redburn started coverage of Hunting, the shale-oil equipment maker, with “buy” advice and a 12-month target price of 800p.

Booming shale demand has not translated to oversized returns for oilfield services companies because the industry “has been serially undone by oversupply”, said Redburn. However, it saw Hunting’s flagship product, the perforating gun, as an exception. The precision aim provided by perforating guns help squeeze out well inefficiencies and improve the reach of fracking, it said. The broker also saw Hunting as the leading player among four niche manufacturers, with the technological gap between it and rivals widening.

“An attractive oilfield services end market should be exposed to structural, not simply cyclical, growth and should enjoy a consolidated supply side where innovation, rather than just capital, forms a barrier to entry. We find the perforating gun market to be such an industry.”


● Goldman Sachs repeated “sell” advice on Tesla with a $210 target price. It said to expect disappointing first-quarter results from the automaker.

The slew of recent updates from Tesla point to weakening US demand for its higher-priced models following the phasing out of a federal tax credit, “and we believe moves by the company to continue to improve its cost structure in order to deliver lower-priced vehicles and tap remaining consumer demand corroborate this”, said Goldman. While the unveiling of Model Y might trigger incremental reservations and boost cash balances, there may be a knock-on effect to sales of the Model 3 “as consumers decide to wait a little longer to purchase a Tesla crossover vehicle”, said the broker.

Delays to international deliveries, weak demand at the higher end and the margin hit from a cheaper Model 3 will combine to cause a “meaningful working capital headwind” in the first quarter, resulting in Tesla’s end-of-quarter cash balance to be “closer to the $2bn mark”, from $3.88bn at the 2018 year end, said Goldman.

● In brief: Aena cut to “neutral” at Credit Suisse; Banco Santander upgraded to “outperform” at RBC; Credit Suisse cut to “neutral” at JPMorgan; Endesa downgraded to “neutral” at JPMorgan; Evonik raised to “hold” at HSBC; Freenet raised to “buy” at Jefferies; IAG upgraded to “outperform” at RBC; Ingenico raised to “buy” at Kepler Cheuvreux; Just Eat cut to “hold” at Investec; Kingfisher downgraded to “hold” at Stifel; Lonmin upgraded to “hold” at Renaissance Capital; Lookers cut to “hold” at N+1 Singer; On The Beach rated new “buy” at Liberum; Schindler cut to “equal weight” at Barclays and to “neutral” at Goldman Sachs; Sunrise Communications downgraded to “neutral” at Goldman Sachs; Umicore raised to “buy” at ING.

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Stocks fade as list of risk factors sets cautious tone

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