British American Tobacco stock is over-priced: Analysts

ANALYSTS are bearish on the outlook of listed cigarette manufacturer BAT Zimbabwe Limited’s stock, which has been downgraded to “sell” after the latest disappointing interim results.

Brokerage firm IH Securities forecasts that the company’s stock, which is the most expensive on the Zimbabwe Stock Exchange, is likely to fall 24 percent over the next 12 months to US$9,83.

The stock was quoted at US$13,01 at the close of trade last Wednesday.

“Given that BAT’s earnings performance is constrained by the current economic environment, we believe the counter is currently over-priced,” the stockbrokers said in a research note last week.

BAT’s revenues in the half-year ended June 30 2014 declined 12 percent to US$23 million as sales of local cigarette brands remained flat.

Margins dropped more than 1 percent to 67,9 percent as packaging and equipment upgrade costs escalated while consumers spent less.

IH Securities expects BAT’s full-year revenues to December 2014 to fall 5,6 percent to US$42,1 million pared by a 4 percent increase in cigarette volumes led by low-end brands such as Madison and Everest.

Higher tobacco sales from the just-ended marketing season, where farmers raked in more than US$650 million, are expected to fillip the firm’s volumes.

“We believe that there will be an uptick in sales volumes performance in second half of 2014, as income generated from a bumper tobacco season filters through to the consumer level,” said the Harare-based brokerage.

In the past 52 weeks, shares of BAT have touched a high of US$14,75 and a low of slightly above US$9. The stock is up nearly 10 percent since January and nearly 300 percent since late 2012.

BAT draws significant investor interest due to its consistency in paying dividends.

In the half-year to June 2014, BAT announced it will return US cents 30 per share to its shareholders, the highest dividend by any ZSE-listed firm this year.

Giant telecommunications firm Econet is paying only USc1,29 per share in dividends for the year to February 2014. Delta, Zimbabwe’s biggest beverage-maker, paid a dividend of USc2,25 per share during the year to March 2014, and Old Mutual is paying nearly USc24. Both Delta and Econet have this year reported depressed volumes owing to declining consumer demand.