BAT Zimbabwe’s volumes dip

Listed cigarette manufacturer, BAT Zimbabwe’s overall volumes, declined by 18 percent in the nine months to September 30, 2019 as sales waned during the period, highlighting the negative effects of the cigarette excise regime from a single specific to a mixed regime system.

The group’s sales performance is highlighted in a trading update in lieu of financial results for the third quarter, which have been delayed due to “the limited time and processes required in terms of the International Accounting Standard 29 – Financial Reporting in Hyper-inflationary Economies.”

In respect of the group’s various brands, the company’s recent trading update showed that Dunhill – the premium brand – declined by a massive 92 percent.

Management attributed the weak performance of the brand to the company’s constrained capacity to import the brand due to the fact that the excise duty is payable in foreign currency, which has been difficult for most companies to access.

The Newbury and Kingsgate brands had a combined decline of 3 percent.

BAT Zimbabwe also said its ‘value-for-money-brands’, namely Everest and Madison, declined 17 percent cumulatively.

And the Ascot brand weighed on the group’s ‘low-value-for-money’ brands, which experienced a 27 percent dip.

Notwithstanding the sales volumes decline, the group said it recorded “positive revenue growth” and is in line to post a profit.

Analysts at Morgan & Co view the group’s stock price as ‘expensive.’

“BAT Zimbabwe currently trades on a prospective PE multiple of 54,3x, which is expensive given a respective PE average of other listed BAT counters of 12,5x.

“Further, BAT Zimbabwe’s dividend yield of 3,59 percent significantly falls short in comparison to a consolidated global BAT average yield of 7,95 percent,” said the analysts.

We remain cognisant of demand and supply-side drivers that continue to affect business performance.

The persistent foreign currency shortages continue to limit BAT Zimbabwe’s ability to supply the Dunhill brand as well as sourcing packaging materials.

“Falling disposable incomes, on the other hand, have hampered demand for all its brands.”