What You Need to Know About British American Tobacco's Upcoming Results

LONDON -- The FTSE 100's tobacco giant, British American Tobacco (LSE: BATS  ) (NYSEMKT: BTI  ) , is due to announce its annual results on Thursday this coming week (Feb. 28).

At the time of writing, BAT's shares are trading at 3,440 pence – up 12% from a year ago, compared with a 6% rise in the Footsie.

How will BAT's business have performed in 2012 compared with last year? And will the results justify the strong performance of the shares? Here's your cut-out-and-check results table!

Metric 

FY 2011

Forecast
FY 2012

Forecast
FY Growth

Revenue

15.40 billion pounds

15.37 billion pounds

(0.2%)

Operating margin

35.8%

36.9%

110
basis points

Adjusted earnings per share (EPS, pence)

195.80

206.6

+5.5%

Dividend per share (pence)

126.5

134.3

+6.2%

Revenue
BAT has increased its revenue annually for as long as I can remember. However, analysts are forecasting a drop for 2012 -- albeit of the most modest proportions. That forecast looks reasonable because, at the nine-month stage, the company told us revenue was down 1%.

However, shareholders can take comfort from the fact that exchange rate movements were responsible, and that, at constant rates, organic revenue grew 3%.

As well as keeping an eye on the revenue numbers, you might also want to read the directorspeak closely for any improvement or deterioration in the trading outlook. In October, the company told us:

The environment continues to be challenging, with industry volumes under pressure. In this environment the expansion of illicit trade remains a threat, driven by excise increases and pressure on consumers' disposable income.

Margins
Like most companies in these austere times, BAT has been working hard to cut costs. In 2011, cost-cutting helped the group increase its operating margin from 33.5%, to 35.8% -- well ahead of its target of 50-100 basis points a year (1 basis point = 0.01%).

If analyst forecasts are on the money, operating margin will again show an ahead-of-target improvement in 2012: the number to look out for is 36.9% (up 110 basis points).

Earnings and dividend
The difficult trading conditions of 2012 mean analysts are forecasting EPS growth of 5.5%. That's perfectly respectable, but well below the annual double-digit growth shareholders have become accustomed to.

Similarly, analysts expect to see a lower increase in the dividend than in past years -- but at 134.3 pence a share, a still-healthy 6.2%. As BAT paid out an interim dividend of 42.2 pence (+11% on the previous year), look out for a final of around 92 pence (+4%).

BAT's dividend policy is to distribute 65% of earnings to shareholders, and the analyst forecasts for EPS and dividend per share are bang in line with that policy. The company has also been adding value for shareholders by buying back its own shares, completing a 1.25 billion pound buyback program in 2012.

It's worth mentioning the dividend and buyback policy in a little more detail -- and from the horse's mouth. Quizzed at a conference call this time last year, finance director Ben Stevens said:

We're pretty comfortable with the 65% dividend policy. We're returning, essentially, all of our free cash to our shareholders with the dividend and the buyback together ... [I think it's] sensible to stick with the 65% payout ratio ... And to the extent we have spare cash, then we'll give it back to shareholders via a buyback.

So, the level of the annual buyback program gives us a pretty good guide to the health of BAT's free cash flow. Keep an eye on how 2013's buyback number will compare with last year's 1.25 billion pounds.

Finally, if you're interested in defensive dividend shares such as BAT, you may like to help yourself to the very latest free Motley Fool special report.

You see, this report tells you all about another great lower-risk income opportunity. The blue chip in question offers a 5.7% income, its shares might be worth over 20% more than their recent price -- and it has just been declared "The Motley Fool's Top Income Stock for 2013."

Just click here to download the report -- it's free.

link


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2270721, ~/Articles/ArticleHandler.aspx, 9/30/2014 2:18:43 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement