British American Tobacco release a stellar set of Interim results

For the interim period to 30 June 2011, BAT posted a stellar set of results driven by a 54% growth in cigarettes sales volume. Exports (cut rag sales) grew 54%. All this translated to a 88% sales growth. The volume growth can be attributed to the strong brand and improved economic environment.

Operating margins expanded to 15.4% from 10.8% the prior period, resulting in a 638% growth in operating profits. The margin expansion was on the back of improved production efficiencies, pricing strategy and improved cost management. Attributable earnings jumped 1,074% to $2 million. An interim dividend of 10 US cents a share was declared, implying a cover of 1.1x and a dividend yield of 8.5%.

Cash generation was strong with net operating cash flow of $1.4 million, implying a cash interest cover of 6.4x. Net gearing improved to 52% from 90%. Trade debtors were significantly down to $4.7 million from $12.8 million at year end.

Addmore Chakurira of Imara Stockbrokers said they believe the Company is in a good position and trading conditions for the second half are expected to be favourable. BAT has a strong distribution network and brands.

Ratings are undemanding at a prospective PER of 5.0x. The company has a generous dividend policy.