BAT to generate healthy dividends

Source: BAT to generate healthy dividends | The Herald August 9, 2016

Business Reporter
FINANCIAL analysts have projected listed tobacco processor, BAT Zimbabwe, to continue generating healthy dividends due to its low gearing levels and low capex burden.

This is in spite of the fact that the tobacco processor’s revenue is seen 18 percent lower in the next financial year after a 23 percent dip in the first half of 2016 at $17 million.

BAT has a gearing ratio of minus 19,6 percent and capex budget of only $700 000 planned for 2016, which leaves it in good stead to continue to reward investors, although profits are seen taking a knock this year.

“Despite BAT’s deteriorating cash generating ability (OCF/EBITDA 58,3 percent vs 69,2 percent in FY15) we anticipate that the company will continue to adopt a generous dividend policy due to its low debt levels and its low capex burden going forward,” said IH Securities in a research note.

Margins are also projected to shrink, as the company is operating in a difficult environment with margins seen 8 percent weaker at 43 percent in the full year to December 2016 from 48,3 percent in the same period last year.

The group undertook rationalisation measures that included staff reduction and investments in new technologies, which impacted on profits in the first half, but is expected to protect profits, revenue and margins.

Going forward, the company will seek to grow its market share for its popular brands, Madison and Everest, which currently stands at 70 percent and marketing efforts will continue in this regard in the second half.

In their quest for distribution excellence, management will continue to review the route to market, focusing on a model that is feet for purpose and replenishing the fleet, which is where BAT will spend the $700 000 capex.

Distribution efficiencies and cost containment measures in the first half led to a 10 percent reduction in selling and distribution costs to $,192 million, however, costs relating to staff rationalisation exercise and the annualised impact of service fees to the new enterprise resource planning grew administrative expenses.

Management has since indicated that it will continue focusing on rationalisation of costs without compromising quality of operations and investing in the workforce.

Slight concerns remain on the possibility of an increase by Government of exercise duty, which would compel the tobacco processor to pass on the cost to consumers.