Cough­ing up

CEO Adams plods through BAT’s ex­cel­lent re­sults

Finweek English Edition - - Companies & Markets -

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 coul­sonmh@gmail.com

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