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British American Tobacco: it's all in the core brand volumes

The cigarette giant is drawing market share gains through its major name brands
July 29, 2016

If the received wisdom is true and smoking is becoming more maligned, those still puffing away are clearly turning to the brands they know well. British American Tobacco (BATS) saw volumes across its 'global drive' brands, which include Lucky Strike and Dunhill, increase by 10.8 per cent, which helped the group's cigarette market share grow 30 basis points across its major markets (those making up three-quarters of volumes).

IC TIP: Hold at 4771p

But the picture, geographically speaking, was mixed. Adjusted operating profit fell marginally in the Asia-Pacific and Americas regions on a constant-currency basis, but the performance across western Europe and eastern Europe, the Middle East and Africa offset this, leaving the group total up nearly 2 per cent at £2.55bn. Post-tax earnings from joint ventures rose £647m to £1.45bn, thanks to the group's investment in Reynolds American (US:RAI), which recently bought rival Lorillard (US:LO), and disposal gains on the sale of international rights to Natural American Spirit to Japan Tobacco.

Reported profit was hit by a rise in raw material costs, which rose 6 per cent in the first half, according to chief executive Nicandro Durante, and this is expected to be similar at the end of the year.

Analysts at UBS expect pre-tax profit of £6.83bn for the year to December 2016, leading to EPS of 245p (from £5.37bn and 209p in 2015).

BRITISH AMERICAN TOBACCO (BATS)
ORD PRICE:4,771pMARKET VALUE:£88.9bn
TOUCH:4,772-4,772.5p12-MONTH HIGH:5,135pLOW: 3,232p
DIVIDEND YIELD:3.3%PE RATIO:21
NET ASSET VALUE:328p*NET DEBT:284%

Half-year to 30 JunTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
20156.403.5014249.4
20166.673.4314451.3
% change+4-2+1+4

Ex-div: 18 Aug

Payment: 28 Sep

*Includes intangible assets of £11.78bn, or 632p a share