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    BATS   GB0002875804

BRITISH AMERICAN TOBACCO PLC

(BATS)
  Report
Delayed London Stock Exchange  -  11:35 2022-12-08 am EST
3305.00 GBX   -3.09%
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BAT progress on sales and next-generation devices hit shares

02/22/2018 | 08:21am EST
FILE PHOTO -  Pall Mall cigarettes are seen after the manufacturing process in the British American Tobacco Cigarette Factory (BAT) in Bayreuth

LONDON (Reuters) - British American Tobacco's (>> British American Tobacco) weaker than expected 2017 sales growth and progress on next-generation products combined to send its share price down as much as nearly 5 percent on Thursday to an 18-month low.

LONDON (Reuters) - British American Tobacco weaker than expected 2017 sales growth and progress on next-generation products combined to send its share price down as much as nearly 5 percent on Thursday to an 18-month low.

The world's second-biggest international tobacco company by revenue has thrown itself into the fiercely competitive battleground of alternatives such as e-cigarettes and devices that heat tobacco without burning it, but it trails Philip Morris International on tobacco-heating devices that some see as more appealing to smokers.

Early e-cigarettes were made by independent businesses, but big tobacco companies have become dominant as they seek to counter shrinking global cigarette sales volumes as growing numbers give up the deadly habit.

"BAT ought to be better placed than most to benefit from these shifting sands," said Charlie Huggins, manager of the Hargreaves Lansdown Select UK funds, which own BAT shares.

"However, the industry is clearly changing at an unprecedented rate and it is very difficult at this stage to say how this all plays out in the long term."

The company, whose cigarette brands include Dunhill and Lucky Strike, also forecast a bigger than expected hit to earnings from currency rates, which also weighed on the shares.

Shares in BAT, the biggest faller on Britain's FTSE 100 index <.FTSE>, trade at a significant discount to Philip Morris stock, largely because of the latter's lead in tobacco-heating devices.

BAT plans to submit a marketing application to the U.S. Food and Drug Administration for its Glo tobacco-heating product this month. It expects to hear back on its application for a different device, with a carbon tip, by mid-year.

Philip Morris is also waiting to hear from the FDA on its tobacco-heating device.

BAT reported full-year revenue up 37.6 percent at 20.29 billion pounds ($28.17 billion), shy of an expected 20.55 billion pounds, according to analysts at RBC Capital Markets.

Excluding the impact of last year's acquisition of Reynolds American and currency fluctuations, adjusted organic revenue rose 2.9 percent, also below analyst estimates. Adjusted volumes of cigarettes and tobacco heating products, meanwhile, fell 2.6 percent, which BAT said was less than the decline across the industry as a whole.

GROWING CONTRIBUTION

BAT said next-generation products contributed 500 million pounds of revenue in 2017, which was below analysts' expectation of 550 million, though in line with BAT's guidance. It also repeated its aim to double that to more than 1 billion pounds this year and to reach more than 5 billion pounds in 2022.

"I think it's going to be substantially higher than this," Chief Executive Nicandro Durante told analysts, pointing to the recent performance of Glo in Japan, its product pipeline and that supply constraints are set to lift in the second quarter.

Glo's contribution was small last year because it had launched in six markets, the company said. BAT plans to bring it to at least 14 additional markets this year, backed by a 500 million pound investment helped by a reduction in U.S. corporate taxes.

By the end of 2018 BAT expects to have capacity to sell 25 million Glo devices a year, as well as 52 billion of the tobacco sticks used in the device, up from 15 billion sticks now.

BAT's adjusted earnings per share rose about 10 percent to 284.4 pence in 2017, excluding the impact of a gain related to the Reynolds deal and a deferred tax credit. That was ahead of estimates.

The company is again aiming for high single-digit earnings growth in 2018, in line with its ongoing ambitions, skewed toward the back half of the year.

Earnings will gain a 6 percent lift from the change in U.S. corporate tax, though half of this will be used in the rollout of next-generation products. Currency fluctuations will reduce earnings per share by 7 percent this year, representing a bigger drop than analysts expected.

BAT shares were down 3.2 percent at 43.08 pounds by 1316 GMT, having dropped as low as 41.93 pounds.

(Reporting by Martinne Geller; Editing by David Goodman)

By Martinne Geller

Stocks treated in this article : Philip Morris International, British American Tobacco

ę Reuters 2018
Stocks mentioned in the article
ChangeLast1st jan.
BRITISH AMERICAN TOBACCO PLC -3.09% 3305 Delayed Quote.20.91%
FTSE 100 -0.23% 7472.17 Delayed Quote.1.42%
MSCI UNITED KINGDOM (STRD) -0.03% 1094.21 Real-time Quote.-6.21%
PHILIP MORRIS INTERNATIONAL, INC. 0.18% 102.06 Delayed Quote.7.24%
S&P UNITED KINGDOM (PDS) -0.23% 1523.63 Real-time Quote.3.36%
SET INDEX THAILAND -0.11% 1620.49 Real-time Quote.-2.24%
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Financials
Sales 2022 28 064 M 34 300 M 34 300 M
Net income 2022 6 888 M 8 419 M 8 419 M
Net Debt 2022 38 359 M 46 883 M 46 883 M
P/E ratio 2022 10,8x
Yield 2022 7,12%
Capitalization 73 753 M 90 142 M 90 142 M
EV / Sales 2022 3,99x
EV / Sales 2023 3,75x
Nbr of Employees 54 365
Free-Float 84,1%
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Number of Analysts 18
Last Close Price 3 305,00 GBX
Average target price 4 038,65 GBX
Spread / Average Target 22,2%
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Managers and Directors
Jack Marie Henry David Bowles Chief Executive Officer & Executive Director
Tadeu Luiz Marroco Finance Director & Executive Director
Luc Jobin Chairman
David O'Reilly Director-Scientific Research
Syed Javed Iqbal Director-Digital & Information