| Thu 5 May 2005, 14:52 | | Remgro's share price lights up on BAT results |
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Remgro`s share price lights up on BAT results
May 5, 2005
By Ingrid Salgado
Remgro shares strengthened in Johannesburg yesterday after British American Tobacco (BAT), which adds nearly half of Remgro`s profit, produced a better set of first-quarter results than expected.
The London-listed BAT, of which Remgro owns 10 percent, lifted diluted earnings 26 percent to 20.1p (R2.3135) a share for the three months to March, leaving BAT the top performer on the FTSE-100 yesterday morning.
On the JSE Securities Exchange, Remgro, which is controlled by the Rupert family, closed 1.9 percent higher at R93.70.
Remgro`s shareholding in BAT, the world`s second-biggest cigarette maker, came after Remgro and Richemont, the Swiss-based luxury goods group also owned by the Ruperts, merged their tobacco interests with BAT in 1999. Richemont holds 18.2 percent of BAT.
The results left many analysts scurrying to upgrade their 2005 earnings forecasts for Remgro, but were not enough for Remgro shares to match a March high of R97.80.
`They were a very good set of results that were way ahead of what the market was expecting,` said an analyst at a major South African investment bank. `The company continues to show a fairly large degree of diversification.`
Looking ahead, BAT chairman Jan du Plessis cautioned against expecting similar earnings growth for the full year. Comparisons with 2004 would become `more demanding`, given various one-off tax benefits in the second half of last year, he said.
BAT said first-quarter profit was boosted by a higher underlying operating performance, lower net finance costs, a lower tax rate, the sale of Etinera, the distribution business of its Italian unit, as well as the merger of its US businesses with RJ Reynolds to form Reynolds American.
Good profit growth was recorded in all regions except the America-Pacific as trading conditions in Canada remained down, while the Japanese market remained intensely competitive.
Analysts were impressed with BAT`s profit growth in Latin America, where rival Philip Morris had experienced difficulties, as well as the Asia-Pacific region, which showed growth despite a significant earnings drop in Malaysia due to excise-driven price increases.
The Reynolds American deal has caused BAT to report results from the US at an associate company level, and no longer as a subsidiary.
Excluding changes resulting from the merger, profit from subsidiary companies rose 6 percent to £582 million while volumes from subsidiaries were up 1 percent at 159 billion cigarettes, with strong performances from Pakistan, Russia and Turkey.
BAT`s four global drive brands - Dunhill, Kent, Lucky Strike and Pall Mall - grew volumes by 2 percent. BAT said it purchased 4 million shares at a cost of £42 million in the first quarter.
