BAT Beats Earnings Forecasts

Source from:  Reuters 07/31/2009

British American Tobacco , the world's second-biggest cigarette maker, beat forecasts with a 25 percent rise in first-half earnings and predicted strong full-year growth, helping to boost its shares. The London-based group, which makes Kent, Dunhill, Lucky Strike and Pall Mall cigarettes, said on Thursday its wide geographic spread and strong brands helped it defy the downturn but it was concerned over rising unemployment and tax rises. "These half-yearly results give us confidence that we are very much on track to deliver another year of strong earnings growth," Chairman Jan du Plessis said in a results statement. The group posted adjusted earnings per share of 77.27 pence ahead of forecasts ranging from 69.6p to 75.8p, with a consensus of 72.7p. The half-year dividend rose 26 percent to 27.9p. BAT shares rose 1.1 percent to 18.60 pounds by 8:20 a.m., after performing in line with the FTSE 100 <.FTSE> index this year, but outpacing rival Imperial Tobacco by 8 percent. "Given the significantly better than expected results and despite more difficult comparatives and a less beneficial currency translation impact in the second half we believe the 2009 consensus EPS estimate will rise by around five percent," said UBS analyst Jonathan Leinster. He puts BAT's current earnings consensus for 2009 at 145.8p a share with UBS on 145.0p. Earnings were boosted by the acquisition of Turkey's Tekel and Denmark-based ST, both completed in the middle of 2008, and also a lift from the weaker pound against most major currencies which added 180 million pounds to operating profits. The group saw some downtrading to cheaper brands in its main troublespot of Central and Eastern Europe, but its top priced brands still performed well and it said the main problems came from the growth in illicit trade prompted by excise tax rises. In the first-half, underlying cigarette volumes dipped 2 percent mainly due to declines in Russia, Ukraine, Japan and Mexico compared to the group's 1 to 1-1/2 percent annual growth target, but sales of its top four brands were 5 percent ahead. BAT spokesman Michael Prideaux said three-quarters of the volume decline came from Russia due to the group raising prices too aggressively in the latter part of 2008, and it saw it key Kent brand in Russia losing market share. "We are coping reasonably well with the recession but have a concern over rising unemployment and excise tax rises especially in Malaysia, Brazil, Romania and the Ukraine," he said. BAT shares trade on 12.5 times forecast 2009 earnings compared to Imperial on 10.3, but behind the world's largest cigarette player, Philip Morris International , on 14.5. Last week, Philip Morris and U.S. Reynolds American , in which BAT owns 42 percent, both raised their 2009 earnings forecasts showing that tax hikes and recession were not hitting cigarette companies as hard as had been expected. Enditem