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Cape Town - Good results and the resumption of its share buy-back programme have contributed to the strong rise in British American Tobacco’s (BAT’s) share price.
The rand/pound exchange rate also played a large role in BAT’s JSE share price outperforming that in London, where the company has its main listing.
This year the share price rose more than 18% on the JSE, compared with 10%-plus in London.
From the beginning of this year and last year the share performed much better than the local stock exchange and the London Stock Exchange.
Coronation portfolio manager Pallavi Ambekar said the main reason for the share price’s strong improvement was the good results recently announced for the year to December.
The results reflect positive aspects from an operational perspective.
The cash distributed to shareholders – by means of a healthy dividend and the share buy-back programme – is also attractive.
The company currently distributes 65% of its profits as a dividend to shareholders.
In addition, BAT has resumed its share buy-back programme.
Even though BAT's volumes in terms of cigarettes sold have declined, the company succeeded in raising prices more than volumes had declined.
Ambekar said BAT had continued with its cost-control programme, which had ensured an improvement in the operating margin.
She said investors were beginning to realise the value of tobacco businesses as they were good cash generators and shareholder-friendly in terms of the cash distributed through, for instance, larger dividends.
Such businesses do well even in poor economic conditions.
Alan Gray portfolio manager Simon Raubenheimer said almost half of the 18% local increase was directly attributable to the exchange rate. BAT’s price is determined on the British market and the South African share price follows suit.
Ambekar reckons potential still exists for an upward price movement for South African investors as the rand currently remains strong and could still weaken.
“The share buy-back programme will ensure that management distributes an extra £750m a year to shareholders, over an above the dividend,” said Raubenheimer.
BAT’s share price is currently about 14 times 2011 earnings.
The company also has a 4.5% dividend yield.
“Despite heavy legislation and restrictions, the company is managing to increase profits in real terms.”
He said although the South African market's average price earnings multiple is currently 15, the market has an average dividend yield of only 2.5%.
“BAT’s high dividend yield is particularly attractive in a global environment of low interest rates.
“BAT will probably increase its profit by more than inflation while, through dividends and share buy-backs, it distributes most of the profit to shareholders.”
In July last year Sake24 quoted Raubenheimer describing BAT as a “rare opportunity for local investors to invest in an excellent company at a lower price than that of the average company on the JSE”.
Of the 23 analysts' recommendations on Bloomberg (issued over the past two months), 13 are “buy”, nine “hold” and one “sell”.
Meanwhile, Rumours abound that British American Tobacco (BAT) wants to acquire American tobacco company Imperial Tobacco.
The Financial Times recently reported investment bank Goldman Sachs as saying that Imperial Tobacco is the most likely takeover target in the tobacco market once consolidation returns to the industry.
Goldman Sachs analyst Fulvio Cazzol said that low debt levels, strong cash creation, lower than average valuations and organic growth problems indicate conditions are ripe for the four biggest tobacco companies to become three.
Of the four, Philip Morris International will encounter too many problems in terms of competition legislation, while Japan Tobacco is unlikely to be a target because of the Japanese government's large stake.
“The most likely transaction is for British American Tobacco [JSE:BTI] to buy Imperial, the smallest of the four,” said Cazzol.
A merger such as this would require BAT to sell some of Imperial’s assets in certain markets and end its partnership with Reynolds American in America.
Goldman Sachs believes the takeover will boost BAT’s profits 2% to 15% before cost savings.
Coronation portfolio manager Pallavi Ambekar said the rumour had been doing the rounds for some time. She believed such a merger to be “possible, but unlikely”.
The rand/pound exchange rate also played a large role in BAT’s JSE share price outperforming that in London, where the company has its main listing.
This year the share price rose more than 18% on the JSE, compared with 10%-plus in London.
From the beginning of this year and last year the share performed much better than the local stock exchange and the London Stock Exchange.
Coronation portfolio manager Pallavi Ambekar said the main reason for the share price’s strong improvement was the good results recently announced for the year to December.
The results reflect positive aspects from an operational perspective.
The cash distributed to shareholders – by means of a healthy dividend and the share buy-back programme – is also attractive.
The company currently distributes 65% of its profits as a dividend to shareholders.
In addition, BAT has resumed its share buy-back programme.
Even though BAT's volumes in terms of cigarettes sold have declined, the company succeeded in raising prices more than volumes had declined.
Ambekar said BAT had continued with its cost-control programme, which had ensured an improvement in the operating margin.
She said investors were beginning to realise the value of tobacco businesses as they were good cash generators and shareholder-friendly in terms of the cash distributed through, for instance, larger dividends.
Such businesses do well even in poor economic conditions.
Alan Gray portfolio manager Simon Raubenheimer said almost half of the 18% local increase was directly attributable to the exchange rate. BAT’s price is determined on the British market and the South African share price follows suit.
Ambekar reckons potential still exists for an upward price movement for South African investors as the rand currently remains strong and could still weaken.
“The share buy-back programme will ensure that management distributes an extra £750m a year to shareholders, over an above the dividend,” said Raubenheimer.
BAT’s share price is currently about 14 times 2011 earnings.
The company also has a 4.5% dividend yield.
“Despite heavy legislation and restrictions, the company is managing to increase profits in real terms.”
He said although the South African market's average price earnings multiple is currently 15, the market has an average dividend yield of only 2.5%.
“BAT’s high dividend yield is particularly attractive in a global environment of low interest rates.
“BAT will probably increase its profit by more than inflation while, through dividends and share buy-backs, it distributes most of the profit to shareholders.”
In July last year Sake24 quoted Raubenheimer describing BAT as a “rare opportunity for local investors to invest in an excellent company at a lower price than that of the average company on the JSE”.
Of the 23 analysts' recommendations on Bloomberg (issued over the past two months), 13 are “buy”, nine “hold” and one “sell”.
Meanwhile, Rumours abound that British American Tobacco (BAT) wants to acquire American tobacco company Imperial Tobacco.
The Financial Times recently reported investment bank Goldman Sachs as saying that Imperial Tobacco is the most likely takeover target in the tobacco market once consolidation returns to the industry.
Goldman Sachs analyst Fulvio Cazzol said that low debt levels, strong cash creation, lower than average valuations and organic growth problems indicate conditions are ripe for the four biggest tobacco companies to become three.
Of the four, Philip Morris International will encounter too many problems in terms of competition legislation, while Japan Tobacco is unlikely to be a target because of the Japanese government's large stake.
“The most likely transaction is for British American Tobacco [JSE:BTI] to buy Imperial, the smallest of the four,” said Cazzol.
A merger such as this would require BAT to sell some of Imperial’s assets in certain markets and end its partnership with Reynolds American in America.
Goldman Sachs believes the takeover will boost BAT’s profits 2% to 15% before cost savings.
Coronation portfolio manager Pallavi Ambekar said the rumour had been doing the rounds for some time. She believed such a merger to be “possible, but unlikely”.
