CEO Adams plods through BAT’s excellent results
DEALERS IN DEATH – whether cancerous tobacco products or armaments – have to develop a carapace. Even so, there was something chilling about listening to British American Tobacco CEO Paul Adams expatiating on the group’s excellent record and favourable prospects, though it didn’t seem to bother analysts at the prelisting presentation in Johannesburg: their main complaint was at Adams’s old-style ponderous approach.
First, he told us what he was going to tell us; then he told us; then he told us what he’d told us. Finally, for those who might have fallen asleep, he summarised the main points again.
Still, repetitions and moral qualms aside, it was an impressive story. In 2007, BAT sold 684bn cigarettes in 180 markets, in 50 of which it’s the market leader. Worldwide market share is around 17%; if its associates in the United States and India are included, it’s on a par with Philip Morris (Marlboro) – even more impressive when you consider that 39% of the world market is in China, a tight government monopoly.
BAT bought more than 460 000 t of leaf from 280 000 farmers and claims more than 100m people depend on the industry worldwide. It has more than 300 brands but focuses on four global drivers – Dunhill, Kent, Lucky Strike and Pall Mall – supplemented by women’s brand Vogue and down-market Viceroy.
This century its compound annual growth rate in earnings per share was 9,6%. First-half 2008 beating that, at 16%. Dividend growth has averaged 12,4% as strong cash generation has liberalised its dividend policy, which is now to pay out 65% of earnings.
Not only has its share price outperformed the FTSE 100, total shareholder return since January 2005 has topped all but one of the 29 fast-moving consumer goods companies BAT considers its most appropriate comparators. Since 2000 it’s moved up from 348 to 85 in the London Financial Times’ Global 500 and is now the sixth biggest London-listed company.
About 30% of the 2bn equity, or about 600m shares, is held in SA, 20% by individuals and 10% by the new Rupert family-controlled Reinet Investments. At current levels, the public holding will be worth around R110bn, which it’s reported will make it the biggest local register.
Including its 2008 interim, latest 12-month earnings were 114,7p and dividends 69,7p. Early this month its price matched its recent peak of just over 1900p/ share (its 12-month high is around 2050p), before falling back to about 1450c and then recovering to 1700p/share.
That’s still a demanding multiple of 14,8 and yield of only 4,1%, showing the market buys the story. I don’t find it particularly cheap, but it will certainly be a candidate next time I look at my socially irresponsible investment portfolio. THINGS AREN’T THAT BAD YOU WON’T SEE this column for the next two weeks – not because I’ve jumped out of a window but because I’m away. I’ll be back in early November.
MICHAEL COULSON firstname.lastname@example.org