BAT seen as Outperforming despite Decline in Smoking Prevalence Rate

Source from:  Bdlive.co.za 06/18/2015

British American Tobacco (BAT) saw its share price rally nearly 4% in midday trade on the JSE on Wednesday, after a number of research firms said they expected the company to outperform in the next few years.

The expectations for the company come despite data released by Euromonitor last week, which showed the global smoking prevalence rate - defined as the percentage of the adult population that smokes - was 20.2% in 2014 compared to 20.4% in 2013.

The rate fell in all major global regions with the exception of the Middle East and Africa.

BAT services 22 markets across these two regions.

The group's answer to a decline in consumers has been higher pricing.

First-quarter figures released in April showed a 3.6% fall in cigarette volumes, worse than the 1.4% fall for last year. Revenue fell 5.8% for the three months ended March 31, but excluding the effect of currency it rose 1.7%.

According to a Bloomberg consensus of 31 analysts who cover BAT, 50% have the share at buy, 38.5% have the company at hold while 11.5% have the share on sell.

In a report published on Tuesday, Credit Suisse analyst Charlie Mills said: "BAT has arguably the most consistent track record in consumer staples ... It has consistently delivered 10% constant currency earnings per share growth, with price and margin the key levers".

BAT listed on the JSE in late 2008 after the restructuring of the Rupert family-controlled entities Richemont and Remgro, and has been one of the best-performing shares in the past five years.

The share price of BAT - the second-largest tobacco company in the world - has shifted from a low of R195 in early 2009 to more than R600. This comfortably beats the JSE's all share index over the same period.

Late in May, the Federal Trade Commission approved the merger between Reynolds American Inc and Lorillard Inc. After the merger, Reynolds' largest shareholder, BAT, owns 42% of the company.

The Reynolds-Lorillard merger has consolidated the tobacco industry and increased growth opportunities for Reynolds in the tobacco category.

Credit Suisse said it expected the Reynolds investment to be mildly accretive to BAT within the first year.

"Going forward, we would expect somewhat better volumes … Margins too should continue to trend upwards", the research firm said.

At 12.40pm, BAT was up 3.81% to R684.11, valuing the company at about R1.3-trillion. Enditem