JOHANNESBURG - Giant tobacco company British American Tobacco (BAT) revealed its ambitious plans of generating £5billion (R90.35bn) in revenue in its next-generation products (NGP) by the year 2022.
The group disclosed this when it held its Capital Markets day in London yesterday and said it was targeting to generate £500million in revenue in NGP this year. It hopes to double that figure to £1bn next year. The NGP products include e-cigarettes and devices that heat tobacco without burning it.
The share price responded positively to the events of the day as it reached a two-month high on the JSE to R900 a share, up from Tuesday’s closing price of R873.64.
Chief executive Nicandro Durante said the company was very pleased to be sharing more details on the opportunities for BAT in NGPs and combustibles, and to introduce its new US subsidiary just three months after the completion of the Reynolds acquisition.
“Our NGP business has real momentum and our confidence is reflected in the financial objectives we have set out,” Durante said.
In July BAT acquired the remaining 57.8percent of Reynolds it did not already own for $54.5bn (R748bn). Durante said the group expected the NGP business to be breaking even by the end of 2018 and to deliver substantial profit by 2022.
The group also said the roll-out of its tobacco-heating product, glo, was on track in Japan, where it reported excellent growth, and is achieving a national share in a leading convenience chain of more than 1.8percent in only the second week of the national roll-out, with share in Sendai now at 10.4percent. In South Korea, the share in handlers in Seoul has reached 3.5percent after nine weeks, the group said.
Dirk Steyn, a portfolio manager at Mergence Investment Managers, said even though the NGP was currently small in BAT, it could form a significant part of the group’s future revenue.
“BAT has forecast that this product segment will grow to more than £5bn revenue by 2022 or to more than 15percent forecast future revenue. We believe these products will get significant traction in the developed markets and we do not see these targets to be too aggressive,” Steyn said.
He added: “We like BAT NGP product strategy, where they support both the vaping and ‘heat not burn’ products and tailor their strategy to the market that they are operating in. BAT is showing significant value compared to European Staples trading at the extreme price earnings (PE) discount of 23percent.”
The group also estimated the impact of foreign currency movements on its full-year numbers, including the recent acquisition, Reynolds.
It said it expected an exchange rate boost of 6.5percent on operating profit and 5.5percent on earnings per share, assuming forex rates are unchanged for the rest of the year, but it faces a transactional headwind of roughly 2percent on operating profit.
Its brands are sold in more than 200 markets and its five global drive brands are Dunhill, Kent, Lucky Strike, Pall Mall and Rothmans. BAT is market leader in more than 55 countries and in 2016 the group generated reported revenue of £14.75bn and adjusted profit of £5.48bn.
BAT shares rose 3.48percent to close at R904 on the JSE yesterday.
- BUSINESS REPORT