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BATS dealt fresh currency blow

Last year's reported figures from British American Tobacco were hurt by foreign exchange rates
February 27, 2015

Reported results for 2014 from cigarette giant British American Tobacco (BATS) look pretty dismal. However, the many investors who rely on BATS for their dividend income can draw some comfort from the fact that currency movements explain much of the top and bottom-line declines. Adjust for these and group revenues rose 3 per cent to nearly £15.7bn, while adjusted profits increased 4.4 per cent to £5.1bn. The operating margin grew 50 basis points to an eye-watering 38.7 per cent.

IC TIP: Hold at 3,750p

Nevertheless, Jonathan Leinster at Panmure Gordon reckons the unfavourable currency movements could prompt downgrades to consensus EPS forecasts - currently 214p for the current financial year - by as much as 4 per cent. And there were underlying problems, too. In Australia an aggressive pricing environment kept adjusted profits at constant exchange rates broadly flat across the Asia Pacific region. Consumers are still trading down to cheaper brands in a number of markets. Constant-currency profits fell by 0.9 per cent in Western Europe, with volumes down 6 per cent.

What's more, exchange rate swings can't hide the ongoing attrition of volumes faced by BATS: last year group cigarette volumes dipped 1.4 per cent to 667bn. However, this was notably better than the decline of 2.5 per cent registered by the ultra-mature tobacco industry as a whole. Volumes were also stronger among the group's five 'global drive brands', which include Dunhill, Lucky Strike and Pall Mall - up 5.8 per cent year on year. As a result, the group managed to up its market share by approximately 10 basis points across its main markets.

Corporate and regulatory affairs director Jerry Abelman declined to confirm if BATS would buy the 24.7 per cent it doesn't already own in Souza Cruz, a Brazilian subsidiary. But he confirmed that BATS would maintain its 42 per cent stake in US titan Reynolds (US:RAI) when the soon-to-be merger with fellow US behemoth Lorillard (US:LO) receives regulatory clearance.

BRITISH AMERICAN TOBACCO (BATS)
ORD PRICE:3,750pMARKET VALUE:£69.9bn
TOUCH:3,749-3,750p12-MONTH HIGH:3,818pLOW: 3,129p
DIVIDEND YIELD:3.9%PE RATIO:22
NET ASSET VALUE:296p*NET DEBT:175%

Year to 31 DecTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201014.94.39145114
201115.44.93157126
201215.25.59196135
201315.35.80205142
201414.04.85167148
% change-8-16-19+4

Ex-div: 19 Mar

Payment: 7 May

*Includes intangible assets of £10.8bn, or 580p a share