East Africa: British American Tobacco Bounces Back On the USE

Source from:  East Africa 12/06/2011

British American Tobacco Uganda (BATU) shares are up 18.8 per cent since July as investors bet that the tobacco manufacture will earn more from its exports because of a weak shilling and increased volumes. BATU began processing leaf for export to other parts of Africa in April, which might translate to higher turnover for the Uganda Securities Exchange listed firm. This is after BAT International decided to move its central leaf materials headquarters from South Africa to Uganda. And because the exports are sold in dollars, when BATU converts those dollars to Ugandan shilling it stands to earn more since the local currency has lost ground to the greenback. The tobacco giant's shares at the Uganda Securities Exchange (USE) have risen from about Ush1, 300($0.51) posted in September to a high of Ush1, 545($0.6) on Tuesday last week, a strong performance compared with other local stocks that have fallen in value due to the bearish condition at the USE. Total market turnover for the day was just Ush2.2 million ($855). Rising interest rates on government securities and surging inflation have dampened many investors' appetite for shares in recent months, leading to falling prices, low market turnover and frequent declines in the All Share Index. Expectations of higher export revenues, supported by a weaker shilling, have triggered strong demand on BATU's counter, with many investors anticipating bigger profits this year. Tobacco exports account for roughly 80 per cent of the company's income and are credited for its return to profitability in 2009. Since then, BATU's market ratings have considerably improved with its dividend yield and earnings per share beating those of other local stocks. A notably small number of listed shares has also played in BATU's favour. The counter holds approximately 49 million shares, with 60 per cent held by institutional investors who are less willing to sell. This, according to analysts, has led to frequent increases in price whenever sizeable bids are made. The latest decision to transfer BAT International's central leaf materials headquarters from South Africa to Uganda is seen as a strong boost to the local subsidiary's commercial strength and tobacco industry ratings after years of rising output. Processed tobacco volumes rose by 3 per cent to 19,500 tonnes in 2009, according to BATU statistics. "BATU enjoys a very unique position in the market because it has very few shares and the highest dividend yield. This means a slight increase in demand usually pushes the price upwards. BATU's dividend yield currently ranges between 10 and 11 per cent due to a huge dividend of Ush158 ($0.06) paid last year which exceeded other local counters. This was driven by a sharp increase in profits between 2009 and 2010 that rose from Ush8.8 billion ($3.4 million) to Ush11 billion ($4.3 million)," said Edgar Mutebi, a dealer at UAP Financial Services Limited. The Uganda shilling stood at Ush2,572 against the dollar in midweek, having recovered from a record low of Ush2,870 in September amidst raging investor worries over European Union debt related issues. However, the shilling remains weaker compared to a close of Ush2, 200 posted at the end of 2010, reflecting trade gains for some exporters and dark scenarios for importers. With the transfer of leaf headquarters from South Africa to Uganda, BATU stands to gain from additional investments in its warehousing, transport and procurement systems, all of which could help consolidate dominance in the small but challenging tobacco industry. "This development implies that BATU will be managing leaf buying activities for Africa and the Middle East markets. This achievement has come about due to Uganda's excellent performance in tobacco growing in previous years that has seen it rise to the top five supply areas in BAT's portfolio. However, Uganda needs to deepen its tobacco quality further in order to retain such a privileged status," explained John Nagenda, a retired director and consultant at BATU. The firm intends to raise productivity levels per farmer so as to raise output other than expanding its 30,000 strong farmer base, according to company sources. "BATU has always suffered low liquidity with buyers frequently at the mercy of sellers and this has sharply driven up its price. The shifting of its leaf headquarters from South Africa to Uganda is a major vote of confidence in the economy and the tobacco industry at large, "observed Robert Baldwin, Chief Executive Officer at Crested Stocks and Securities Limited. Enditem