Shares digital

Cigarettes group British American Tobacco's (BATS) success in winning the auction for Turkish state tobacco company Tekel will propel the group into the second spot in the world’s eighth largest tobacco market. Although Tekel is currently loss making like many state-owned companies, BAT believes that the acquisition will be earnings enhancing from next year.

Although ‘per capita’ consumption is falling in Turkey, population growth is helping to compensate for this. More importantly BAT should be able to use the Tekel distribution system to boost sales of its four drive brands – Dunhill, Lucky Strike, Pall Mall and Kent.

BAT has a record of successful acquisitions. Both the merger with Rothmans and the Eti acquisition exceeded initial expectations. This deal is likely to do so too.

BAT’s 2007 results are due today. The market is forecasting earnings of 107p, rising to 119p this year, placing the shares, at £18.69, on a PE of 17.5 falling to 15.7.

Shares says: This is a good deal which will encourage the market.Continue to buy. Citigroup has a £21 Target Price.

by: John Marshall

The writer holds shares in this company