Zimbabwe: BAT's Sterling Performance

Source from:  Financial Gazette (zw) 07/09/2004

BAT's sterling performance comes amid renewed interest in equities vis-à-vis alternative markets. 18 million shares in issue and a standing buy-back provision Okayed by shareholders recently restricts liquidity of the company's stock, hence the sustained price throughout last week. Ironically management has highlighted challenges facing the company, pointing towards a less impressive first half. In the four months to April, volumes were down 35 percent year on year and the company did not have much pricing power in a depressed market. This led to a hold on price increases. With wage pressures having caught up with inflation, the first half of FY2004 does not look as rosy as the share price would tempt one to believe. Many cases within the manufacturing sector are in arbitration with the few that have gone through passing verdicts that favoured the employees. Wage demands had hitherto been kept in check by stable prices that have since, slowly but surely, started nudging up. Nonetheless, BAT still maintains a healthy market share of 97 percent, which would put the company in good stead once the economy starts showing signs of consumer activity. The company can then start exercising some pricing power. Going forward, the company would perform a balancing act between pricing and volumes growth in order to maintain both customer loyalty in brands and shareholder returns. Pirate brands that are being sold for half the retail price of BAT brands, owing to the fact that excise duties comprise 50 percent of the retail price of cigarettes, is another worry in maintaining market share. That said, it is going to be a while before the company returns to its heyday of 1.1 times dividend cover and seven percent ($1 890 annualised at current share price) dividend yield. AFTER failing to convince the market why they were disposing of the company's manufacturing arm in a deal involving only the majority shareholder and at a time when major competitor Pelhams was out looking for one, the company was forced to back its pitch down. Plan B was that minorities would now participate in the purchase of the purportedly dim-looking perennial loss-maker Tedco Industries. As expected, a number of the stockholders who hitherto nixed the deal would now go on to vote for the unbundling. That said, the group is still faced with mounting problems emanating from the lack of agility on the part of the management when the cyclone hit town. A major competitor went on to slash prices in order to push inventories but our beloved company adopted a wait-and-burn attitude. Tedco's stock price fell after the re-organisation of the proposed transaction because punters, who had been enticed by a $6 special dividend payout (a healthy 20 percent yield at a price of $30) on the close of transaction started pulling out of positions because the new shareholders would actually call for a rights issue. For the company to go forward, shareholders should ensure that they get a good price for their 50 percent stake in Telco Industries so that at worst the manufacturing division is fully capitalised or at best there is some spillover from the proceeds to recapitalise the retail division. Enditem