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British American Tobacco (LSE:BATS) share price rose 57.50 pence this morning to 3,520.00 following the release of its first half earnings report. For lower-priced stocks that would be quite a leap, but with a share price in excess of 3,500, it amounts to about just over 1.5%
The tobacco industry completely puzzles me. I live just a bit south of what has traditionally been called “Tobacco Road” in the States. Whilst more and more businesses here are posting “No Smoking” signs and cigarette packages contain warnings that smoking might be a death sentence, tobacco producers in the region continue to grow and prosper. It doesn’t look the same when you drive “Tobacco Road” in these days of superhighways and technologically advanced farming, but, on some of the back roads you can still see the leaves growing and the intermittent rows of drying shacks.
But ask any passersby about the British American Tobacco Company, and they will tell you that they have never heard of it. That also puzzles me. How is it people are largely blissfully unaware of the sixth largest company by market capitalization on the FTSE? In fact, I find it almost incomprehensible. Perhaps, from where I am, it’s the self-centered American psyche that thinks that everything is all about us.
But I digress. From what? British American Tobacco. Oh.
Having said all of that, here’s another thing that puzzles me. With a shrinking market for tobacco products, how does BAT continue to grow and prosper? This is the kind of company that I would love to study in-depth. Just look at these numbers:
- 2% growth in revenues for the half-year at current rates
- 4% growth in adjusted profit from operations to £2,807 million
- 8% growth in diluted earnings per share to 109.10
- 9% growth in basic earnings per share
- 7% growth in interim dividend per share to 45.00
- an increase in market share in its Top 40 markets
And all of this with a 3.4% lower volume of cigarettes sold and a 3.2% lower volume for total tobacco products.
CEO, Nicandro Durante, pulled back the curtain on new product developments that the company is exploring and introducing to maintain its leadership role, saying that “CN Creative, our stand-alone company specialising in the development of next-generation products, launched Vype in the UK, the Group’s new e-cigarette brand. This is another step in our ongoing commitment to developing a portfolio of next-generation products alongside our tobacco business.”
The company’s emphasis on innovation helps me to understand a part of the puzzle. Durante added that “we have the right plans in place and the resources at hand to continue to strengthen our competitive position and to deliver another year of good growth.’
In a concurrent announcement, BAT revealed that COO, John Daly, will step down from his position at the end of 2013 and will retire from the company in April 2014. I sincerely hope that it does not hurt his self-esteem to see the company share price rise to such a healthy extent upon publication of his intent retire.
Finally, I am puzzled when I think about the aforementioned restrictions and warnings concerning tobacco use and I read about British American’s environmental sustainability programs that reach from farming to processing. Puzzling. Very puzzling.
Sir Walter Raleigh, this is all your fault!
One closing remark: Something else puzzled me 44 years ago when I visited the Winston cigarette production facility in Winston-Salem, North Carolina, my first experience of the kind. I saw more cigarettes at one time than I have probably seen it total since. It was the epitome of cigarette manufacture in its day. What puzzled me, you ask? All of the “No Smoking” signs posted everywhere I looked.
