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BAT revenue to grow by 106%



ADVISORY firm, IH Securities has projected that revenue at the Zimbabwe Stock Exchange-listed British American Tobacco (BAT) will grow by 106% this year on higher average price per stick and regularised cut-rag production.

In an analysis of BAT’s financial results for the year ended December 31 2020, IH said revenue would grow to $3,14 billion.

The cigarette maker recorded revenue of $1,52 billion during the year ended December 31 2020 up 897%, bolstered by the revived cut-rag line.

“Despite vaccine rollout efforts to push back against the COVID-19 pandemic and expectations of significant liquidity injections due to a rebound in consumer spend from the summer crop marketing season, it is our view that on a combination of the lockdown in the Q21 (first quarter of this year), which reduced activity in recreational areas, and a review of excise duty from a fixed rate of $100 per 1 000 cigarettes to the equivalent of US$5 per 1 000 cigarettes likely necessitating further price increments, volumes are looking to remain under pressure at least through the first half of the year as demand remains uncharacteristically elastic,” IH said.

“Barring any further lockdowns from a possible third wave of COVID-19 infections, we, however, believe volumes will gain momentum especially in the second half of the year to FY21 (financial year 2021).

“We anticipate that revenues will grow at 106% in FY21 to $3,14 billion on the back of higher average price per stick and regularised cut-rag production.

“Gross profit margins are expected to remain sticky upwards at 74,2% while earnings before interest tax depreciation and amortisation margins are anticipated to continue on a steady recovery path year-on-year from 24,34% to 37,5% in FY21 as exchange rate losses moderate on the back of the stabilising currency,” it said.

IH said growth in marketing and advertising costs as a percentage of sales would continue on an upward trajectory in the immediate to short term as the company ramps up efforts to fight sluggish demand.

The firm said total assets were expected to increase significantly from $1,34 billion to $1,90 billion, sustained by the 322% growth in cash and cash equivalents.

“Going on BAT’s current stance of operating on zero leverage, we forecast net debt will purely remain a reflection of cash holdings.

“We forecast that BAT net income will grow 202% y/y to $821,65 million at FY21 versus $271,91 million at FY20 on flattening cost corrections,” it said.

Overall volumes fell 12% last year as the company experienced volume declines across all segments except for the premium brand Dunhill, which grew 1 481% year-on-year from a low base effect.

In the aspirational premium segment, volumes shrunk by 45% as a consumer disposable incomes remained under pressure from the pandemic.

Low value for money segment performed relatively worse at a sales decline of 47%.

Volumes in the flagship value for money segment, however, proved defensive, declining only 8% year-on-year.

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