Shares digital

British American Tobacco (BATS) – Finals PTP: £3,078m (£2,764m) Divi: 66.2p (55.9p)

The group combined the results announcement with the acquisition of the Swedish group ST, its second important deal in five days. Despite a modest decline in overall sales and adverse exchange movements, earnings were up by a healthy 11%. The dividend reflecting its strategy of increasing the pay out ratio rose by 18%.

The keys to the group’s are two-fold. The first is the increased popularity of its four global drive brands – Pall Mall, Dunhill, Lucky Strike and Kent – whose sales rose by 10% last year. They enjoy better margins. The second is the continued emphasis upon reducing costs. Last year the group enjoyed savings of £277m. It is targeting savings of a further £800m by 2012.

Both the Tekel and Swedish deals should rapidly become earnings enhancing. At £19.42, the shares are selling on an historical PE of 18 and yield 3.4%. Citigroup’s target price is £21.

Shares says: The shares should continue to outperform.

by: John Marshall

The writer holds shares in this company.