Put that in your pipe and smoke it
BAT will hopefully pay its pound of flesh
BRITISH AMERICAN TOBACCO (BAT, code BTI) will be announcing an excellent profit for the nine months to September at the end of this month. That should improve the poor performance of its share price over the past six months, especially as measured in rand terms on the JSE. Since the JSE listing of the share in October 2008, investors in BAT have felt like poor relations rather than the millionaires the company made every year when it was still part of the Rembrandt group.
BAT announced at end-July its profit per share for the six months to June rose by 24% – from 62,48p to 72,23p. Naturally, that’s measured in sterling, which is losing value very rapidly. For the nine months to September 2008, BAT earned 95,40p/ share, 16% more than the 87,67p for the corresponding period to 30 June 2007. But that was before sterling weakened and it was still worth something in rand.
Analysts predict BAT’s profit for the nine months to September could be as much as 114p/share. That’s almost nearing the 123,28p/share earned for the full 2008.
That good profit is apparently still not good enough for prospective investors and at R232/share after 12 months on the JSE, BAT is certainly the disappointment of the year. But investors should learn to look slightly further than the current weak sterling. In his survey of the financial year to 31 March, Reinet chairman Johann Rupert – whose assets consist largely of an investment in BAT – said: “BAT is a global company that earns nearly all its cash flow and profit outside the United Kingdom. The weakening of the pound should therefore in due course contribute to greater profitability, which should then be reflected in the share price again.”
Rupert is right, and existing – and especially prospective investors – would do well to use the opportunity to increase their exposure to BAT slightly before the announcement at end-October. Earnings per share for the nine months to September could easily be as much as 125p/ share and for the full 2009 could even approach 155p/share, or 25% more than 2008’s 123,28p.
BAT declared a final dividend of 61,6p
in 2008. At the then exchange rate of more than £1/R14 that was worth 882c to South African shareholders. It’s not unlikely BAT could declare a final dividend of 77p/share, or perhaps even 80p/share, this year.
Even at the current weak exchange rate of less than £1/R12, local shareholders would receive a final dividend of at least 883c. Along with the interim dividend of 361c (27,9p) paid earlier this year, that’s a cash income of 1250c/share for SA investors. That means a tax-free cash return of 5,3% – not bad for a world-class company whose shares are available on your doorstep.