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British American Tobacco shares positive as financials land mostly ‘in-line’

Whether slightly above or slightly below, practically all BAT's key financial metrics were close or in-line with market expectations.

British American Tobacco PLC -

British American Tobacco PLC (LON:BATS) shares started slightly positively against otherwise glum market conditions after financial results confirmed a performance largely in-line with expectations.

The company reported revenue of £25.87bn, up 5.7%, whilst profit from operations reduced by 3.2% to £9.01bn.

At 249.7p earnings per share was down 5.4%,and, cash generation from operations was marked at £8.99bn which was a 12.6% decline.

Adjusted financials made for more positive reading. With adjusted profit from operations rising 7.6% to £11.13bn, adjust EPS increased 9.1% to 323.8p.

“We have delivered value growth from our combustible business and grown our new categories business, now providing potentially reduced risk products to close to 11mln consumers,” said Jack Bowles, chief executive.

“In September, we announced a significant restructuring and simplification programme, which is largely complete.

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“This will create the capabilities and resources to continue investing in New Categories and allow us to deliver on our financial commitments. Looking into 2020, we are confident of another year of high single figure adjusted constant currency earnings growth."

Stockbroker Liberum, in a note, said: “British American Tobacco's net sales of £25,827m beat consensus expectations by 48bps.”

“Adjusted operating profit of £11.1bn just missed expectations by 27bps. Adjusted operating margin declined year over year by 30bps representing a 75bp miss vs expectations.

“EPS came in at 323.8p which is a 39bp beat vs expectations of 322.55p. This is 8.4% growth at constant currencies, which is clearly strong.”

“Free cash flow came in at £6.519 bn which is better than Bloomberg consensus forecasted at £6.48bn.”

Liberum also noted that BAT’s guidance for 2020 “looks in-line with what we expect from the business”.

BATS predicts tobacco industry wide decline of around 4% with US volumes reducing by 5%, against this the company forecasts revenue growth between 3 an 5% as it moves towards ‘new category’ growth.

It added that its committed to high single-digit constant currency growth in EPS, and, aims to keep cash flow conversion above 90%.

Hargreaves Lansdown fund manager Steve Clayton, in a statement, said: “These are predictably solid results, which demonstrate the strength of BAT’s businesses around the world.

“Tobacco faces many challenges currently, but BAT is navigating around them and generating substantial cash flows in the process. Growth in the New Categories of vaping and tobacco heating products eased back to 32% following the vape health scare in the USA last year.”

Clayton added: “Challenges ahead include the competitive threat from Philip Morris’s iQos, tobacco heating product, which is proving to be the one to beat amongst the Next Generation alternatives to traditional cigarettes. Regulatory and legal challenges abound, but as these results show, the industry remains robustly profitable.”

The fund manager described BAT’s 6.4% dividend as “strong”.

Quick facts: British American Tobacco PLC

Price: 2759 GBX

Market: LSE
Market Cap: £63.29 billion

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