British American Tobacco PLC (LON:BATS) said revenues and profits looked likely to grow more slowly than previously expected this year due to the effects of the coronavirus pandemic in emerging markets and from a lack airport duty free sales.
The Lucky Strike and Rothmans cigarette maker gave new guidance for revenue growth of 1-3% for 2020, down from its earlier indication of turnover expanding around the lower end of its 3-5% medium-term target, with earnings per share growing by a mid-single-figure percentage compared to a high-single-figure before.
Sales in developed markets, representing around three-quarters of the total last year, were said to be strong in the first six months of the year.
“The impact of COVID-19 in emerging markets has been more pronounced, including in Bangladesh, Vietnam and Malaysia,” the FTSE 100 group said, with lockdown closures lasting longer in some countries than anticipated and South Africa still imposing a COVID-19 related tobacco sales ban.
In new categories such as vaping and “modern oral”, where brands include Glo, Vuse and Velo the pandemic has disrupted supply, led to the company scaling back or postponing some launches and slowed overall industry growth rates such that BAT has now pushed back its £5bn revenue ambition to 2025 from 2023/24.
However, while deleveraging is also going to be slower than planned, the group said overall the business was resilient enough to continue its dividend pay-out ratio of 65% of adjusted diluted EPS.
The shares fell 2.5% to 3,044.35p in early trading on Tuesday, meaning they are down almost 7% since the start of the year and almost 45% over three years.
“The road ahead may be strewn with obstacles, but BATS’ historic resilience will likely give the company a fighting chance in maintaining its premier position,” said Richard Hunter at Interactive Investor.
“Providing guidance and confirming dividend aspirations are becoming increasingly rare in the current environment, but in a refreshing change BATS has delivered both.”
He added that this reflected the structural difficulties of a declining market remain, with regulatory and retrospective legal actions continue to cast a shadow, but a bull case remained that the group continues to generate cash on a prodigious basis.
“The current yield of 6.6% seems therefore to be protected, which is both reflective of the company’s liquidity while also being of attraction to increasingly starved income-seeking investors.”
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