British American Tobacco battles disappointing emerging markets, and Aveva strengthens its business

“The S&P 500 market recovering all of its lost ground this year may have put a spark in Asian markets on Tuesday but the celebratory mood didn’t extend to the UK and Europe,” says Russ Mould, investment director at AJ Bell.

“The FTSE 100 fell 0.4% to 6,447 as insurers and banks were marked down and British American Tobacco disappointed with its emerging markets performance.

“Investors were more interested in playing the ongoing rebound in Carnival’s shares, with the cruise ship operator up a further 1% to £15.88. That means its stock has increased in value by 162% since a low of 605p on 2 April.

“In vogue was engineering software group Aveva following its full-year results, as well as pharmaceutical stocks and gold miners.

“In Germany, the DAX fell 0.2% with consumer cyclicals and financials the worst hit. In a similar situation to Carnival, investors flocked to the travel sector to bid up previously beaten-up stocks, with airline Lufthansa rising another 2.2%.”

Brittish American Tobacco

“All things considered British American Tobacco has been doing relatively well against a very difficult backdrop. Its sales have generally held up and dividends continue to be paid, while its biotech subsidiary is working on a potential vaccine for Covid-19.

“There aren’t many companies which can lay claim to such stability during one of the most testing times for business in decades.

“Nevertheless, its operations aren’t bulletproof as evident by conditions in emerging markets being worse than expected. It is also suffering from reduced sales in travel retail outlets although this only represents less than 1% of group revenue.

“Longer-term, British American Tobacco still needs to deal with the fact that an increasing number of investors around the world are no longer interested in backing businesses that are harmful to society.

“The company may be adopting lots of ESG principles in how it does business, but that doesn’t get over the fact its end products are harmful to people’s health.

“Having more than halved between 2017 and 2019, British American Tobacco’s share price has shown more resilience in recent times. However, the real question is whether it will be left behind when economic conditions start to improve.

“Investors might be more interested in companies with real growth prospects and ones that are more aligned to modern day principles of doing good.”

Aveva

“While the technology sector has been relatively unaffected or even seen its prospects improved by the coronavirus pandemic, FTSE 100 member Aveva arguably sits in a different category.

“At first glance you might think its focus on engineering and industrial software, not to mention the oil and gas industry, would leave it particularly exposed to a downturn in activity caused by the global lockdown.

“In this context full-year results were impressively robust, with the maintained dividend a real signal of management confidence in the group’s prospects and the company continuing to target margin improvements.

“Aveva is looking to cut costs as it responds to the crisis but has notably not taken any government support and is sitting on a decent wedge of cash.

“Longer term needs for more efficiency in industrial settings and shorter-term requirements for social distancing are potential demand drivers for the products and services Aveva offers.

“After all, these products and services run the full gamut from simulation and computer-aided design into construction and day-to-day operations.

“An increasing bias towards recurring revenue also builds more resilience into the business, as will a shift in direction away from cyclical end markets into settings such as utilities, facilities management and data centres.”

These articles are for information purposes only and are not a personal recommendation or advice.