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BAT: Q3 results
British American Tobacco said like-for-like operating profits for the nine months to September 2005 rose 9% to £1,961m.
Comparisons with last year are complicated by the merger of the company’s US businesses with R.J. Reynolds in July 2004 and the sale of its Italian distribution business Etinera in December 2004. In order to analyse performance we will strip these out and focus on the like-for-like (LFL) comparisons. ‘Headline’ reported operating profits for the nine months declined by 43% to £1,901m from £3,321m last year, the comparative being boosted by the two items referred to above.
The company said like-for-like volumes in its subsidiaries grew 2% to 503 billion cigarettes, all growth being organic. Strong performances in Russia, Turkey, Pakistan and Bangladesh more than offset declines in Canada, South Korea, Argentina and Mexico. Amongst its brands, Kent performed well in Russia and Romania, along with Pall Mall in Germany and Hungary.
In common with the rest of the industry, BAT faces declining markets in North America and Western Europe; a combination of restrictive legislation and growing awareness of tobacco’s health risks being responsible for the trend. Growth is dependent on the ‘emerging markets’ of Eastern Europe, Asia and Africa.
In the medium term BAT is expected to achieve a reasonable level of growth with emerging markets more than offsetting the declining trend in more mature markets. Restructuring of the group’s manufacturing base (to cheaper location) should maintain margins. Long term growth prospects are less certain, however.
The share trades at 1267p, on a prospective PE (2005 earnings) of 15x, at the upper end of the sector with a yield of 3.6%.
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