Here's an update on the BAT story, EZ...
UPDATE 4-BAT 2006 earnings rise, boosts share buy-back
Thu Mar 1, 2007 9:19 AM ET
(Adds comments from chairman, updates shares)
By David Jones
LONDON, March 1 (Reuters) - British American Tobacco, the world's No 2 cigarette maker, posted a 10 percent rise in 2006 earnings on Thursday and dampened talk it may make a big acquisition as it boosted its dividend and share buy-backs.
The London-based group <BATS.L>, which makes Lucky Strike, Kent, Dunhill and Pall Mall cigarettes, said it retained the ability to make a big acquisition, but analysts said this was unlikely in the short-term which helped to boost its shares.
"In our view, the increased return of cash to shareholders suggests large scale M&A by BAT is unlikely," said industry analyst Michael Smith at investment bank JP Morgan, after BAT raised its dividend 19 percent and share buyback 50 percent.
BAT shares rose 2.1 percent to 15.82 pounds by 1400 GMT, making them the second biggest gainer in the FTSE 100, boosted by solid trading, and the bigger returns to shareholders which were unlikely to be diluted by a big acquisition, analysts said.
"We still prefer to use our balance sheet to make acquisitions, but only if they make financial and strategic sense," BAT Chairman Jan du Plessis told a briefing, adding the buy-back could be suspended if an acquisition was available.
He said BAT's strategy was to create value for shareholders rather than destroying it by poor acquisitions and added the group can meet its strategic goals by organic growth alone.
Analysts said this reinforced BAT's previous view that it sees most targets as being too highly valued and will not join in a round of possible takeovers which may be prompted by Japan Tobacco's <2914.T> bid for Britain's Gallaher Group <GLH.L>.
BAT's adjusted 2006 earnings per share rose to 98.12 pence ($1.92), in line with analysts' forecasts of 96.6-100.0p, as it raised its 2006 dividend to shareholders by 19 percent to 55.90p a share, and its share back-buy programme to 750 million pounds for 2007 from 500 million pounds in 2006.
The company said the rise in the dividend and in the share buyback programme followed a review of its capital structure, and its dividend payout ratio from long term earnings will rise to 65 percent in 2008 from 57 percent in 2006.
The tobacco world was sparked into life last December when world No 3 producer Japan Tobacco agreed a 7.5 billion pound bid for the No 5, Benson & Hedges maker Gallaher, prompting talk over how other big tobacco groups like BAT might respond.
BAT, the world's No 2 cigarette company after Altria's <MO.N> Philip Morris, reported like-for-like cigarette volumes rose 2 percent in 2006, and the volumes of its four top global cigarette brands increased by 17 percent driven by most emerging markets such as Russia, Brazil and Malaysia.
BAT's underlying cigarette volume rise of 2 percent topped its 1 to 1-1/2 percent target, while 10 percent earnings growth beat its medium term "high single-digit" percentage target.
Analysts said BAT's results were helped by its wider geographical spread than its rivals, making it less exposed to declining mature cigarette markets and action to curb smoking in some West European countries while it continues to cut costs.
BAT's planned share buying means the 29.3 percent stake in BAT held by Swiss-based luxury goods group Richemont <CFR.VX> and investment group Remgro Ltd <REMJ.J> will rise above 30 percent, but the UK Takeover Panel has indicated it will waive the UK rule that it should bid for BAT when over 30 percent.
Richemont and Remgro, both controlled by the South African Rupert family, hold their stake in BAT as a legacy of BAT's purchase of Rothmans in 1999.
BAT shares have outperformed the FTSE 100 index by 8 percent over the last twelve months and trade on 14.9 times forecast 2007 earnings, behind Imperial Tobacco <IMT.L> on 16.5 and Altadis's <ALT.MC> 16.4, as the two latter groups have gained more from the current takeover talk.
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