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British American Tobacco completes Reynolds acquisition

The tobacco company completed the acquisition of Reynolds for £41.7bn, which management believes will grant the larger group balance between emerging and developed markets
July 27, 2017

Following the close of this results period, British American Tobacco (BATS) completed its acquisition of Reynolds, paying £41.7bn for the remaining 57.8 per cent stake not already owned by the group. Chief executive Nicandro Durante said that the deal would create a “stronger, global” company with a balanced presence between “high-growth emerging markets” and “high-profitability developed markets”. Work has begun to realise projected cost synergies, although earnings per share fell due to the impact of last year’s sale of the international brand rights to Natural American Spirit by Reynolds.

IC TIP: Hold at 5433p

The group sold fewer cigarettes during the first half, down 5.6 per cent to 314bn, although BAT's share of its key cigarette markets increased thanks to the popularity of its global drive brands. To compensate for falling volumes the company has expanded its range of “next generation products”, which includes vaporisers and tobacco heating products, into 15 markets worldwide and is now the largest vapour company in the world.

Analysts at Whitman Howard expect EPS of 260p for the year ending December, compared with 248p in FY2016.

BRITISH AMERICAN TOBACCO (BATS) 
ORD PRICE:5,433pMARKET VALUE:£125bn
TOUCH:5,432-5,434p12-MONTH HIGH:5,643pLOW: 4,237p
DIVIDEND YIELD:3.2%PE RATIO:24
NET ASSET VALUE:336p*NET DEBT:233%
Half-year to 30 JuneTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20166.73.4143.851.3
20177.73.0121.856.5
% change+16-12-15+10
Ex-div:17 Aug   
Payment:28 Sep   
*Includes intangible assets of £12.2bn, or 531p a share