British American Tobacco Beats First-Half Expectations
Global cigarette giant British American Tobacco (BTI) - Get Report , the maker of Lucky Strike and Pall Mall, announced a better than expected set of first-half results today, prompting the stock to rise in London.
The company saw a greater than expected increase in reported earnings per share and the group also saw strong revenue growth, volume growth and gained market share. Management attributed the strong performance to good organic growth, higher cigarette prices and past acquisitions, including Reynolds American's acquisition of Lorrilard in 2015. The deal is expected to add 1% to earnings per share in the current year.
British American Tobacco shares rose by as much as 1% after the opening bell, to reach a peak of 4,850.0 pence ($63), before paring gains. The stock has risen by 25.6% since the start of the year, after entering January at 3,785.0 pence.
Earnings per share were up by 10.9% for the period, to 111.1 pence, against expectations for 9% growth to 109.8 pence. Growth at constant exchange rates was higher, at 13.4%. This was after revenues rose by 4.2%, to £6.6 billion and by 7.8% at constant exchange rates.
Chairman Richard Burrows said, "We remain confident that we will deliver another year of good earnings growth at constant rates of exchange."
Reported cigarette volumes grew strongly by 3.4%, to 332 billion, against analyst expectations for a more moderate 3% rate of growth. Almost all key regions saw volumes rise, with the Americas being the only exception, while the strongest increase was in Western Europe where volumes rose by 9.6%.
Burrows said the company's continues to grow in the e-cigarette market, saying the bulk of group-profits growth will be weighted toward the second half of the year.
British American Tobacco's stock has risen by around 20% since the the U.K. voted to leave the European Union, as investors flooded into defensive positions and also bet increasingly on the prospect of internationally diversified companies benefiting from a foreign exchange related boost.
However, unlike many other international companies listed in London, British American Tobacco may not benefit sustainability from the fall in the pound.
Burrows predicted a foreign exchange benefit that is equivalent to 4% of earnings per share for the year, but says that this will probably be offset by the impact of increased foreign currency transaction costs, which could dent earnings by as much as 6%.
Analysts at Berenberg described the estimate of foreign exchange benefits as being conservative. The analysts said sales growth figures were best-in-class and reiterated their hold rating for the stock. The Berenberg price target of 4,840.0 pence implies upside of around 2% from current levels.