BAT shares fall almost 7% on weak 2021 guidance
DURBAN - BRITISH American Tobacco (BAT) share price slid by almost 7 percent on the JSE yesterday morning after the international tobacco group said it only expected a single-digit growth in earnings for 2021, due to a continued uncertainty created by the Covid-19 outbreak.
The share later closed at R534.21. It forecast a mid-single figure constant currency adjusted earnings per share (Eps) growth, which reflected a continued Covid-19 impact and warned about a likely currency headwind of around 7 percent on earnings growth in 2021.
BAT also expected constant-currency revenue growth of between 3 percent and 5 percent in 2021.
Chief executive Jack Bowles said the firm’s transformation journey continued to be led by their three strategic priorities, which include accelerating growth in New Categories, fuelled by value growth in combustibles and benefiting from a faster, simpler, more agile business.
He said the company now had 13.5 million consumers of non-combustible products, a growth of 3 million – doubling the rate of consumer adoption in the second half of 2020.
“We are well on track to meet our ambition of 50 million consumers of our Non-Combustible brands worldwide by 2030,” Bowles said.
The group’s results that were in line with expectations for the year to end December, with profit from operations increasing by 10.5 percent to £9.96 billion (about R190bn) although revenue was marginally down by 0.4 percent to £25.78bn, as higher prices and a better product mix offset lower volumes.
The owner of brands such as Kent, Dunhill and Lucky Strike reported a 12 percent increase in diluted Eps to 278.9 pence a share and the board increased the full-year dividend by 2.5 percent to 215.6p.
Peter Takaendesa, the head of equities at Mergence Investment Managers, said the results were largely in line with market expectations and the company’s 2021 guidance was a bit softer than expected due to expected headwinds from a stronger British pound, its reporting currency, and ongoing Covid-19 impact.
“We believe this drove the negative initial price action after results were reported although there is a chance that management provided more conservative forecasts at this stage given further Covid-19 waves uncertainty,” Takaendesa said.
Takaendesa said the ongoing regulatory risks in global tobacco markets and the recent trend of rand strength could be headwinds to the BAT share price recovery on the JSE in the near term.
“However, we find the shares attractively priced at 8 percent dividend yield and about 8x PE on the historical 2020 numbers reported. If this attractive valuation remains in place we expect BAT to launch share buybacks later this year as the balance sheet is de-geared to levels management has indicated as comfortable,” Takaendesa said.